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Will Q2 earnings heighten short interest in AMC shares?

The outside of an AMC movie theatre

With AMC Entertainment [AMC] set to report second-quarter earnings on 4 August, CEO Adam Aron tweeted that a short seller “pounce” could be imminent. The remark follows similar comments he made on the Q1 earnings call in May and in a separate statement in July.

Addressing AMC’s army of loyal retail investors on 7 July, Aron said: “Your ire and anger directed at short sellers is evident. I hear your suggestions that we should call for more market regulation by [the] government or that we should take more company action by issuing a cash, gift card or NFT dividend”. At the time, the short interest in AMC shares was at 20% of the float, according to Seeking Alpha – far lower than the 125% it reached in early 2021.

Aron is known for using slang popular among the Reddit crowd in a bid to keep them on board and prevent the stock from coming under more pressure. The AMC share price was down 45% year to date at $14.56, as of the close on 29 July. Though it’s trading 50% above the 52-week low of $9.70 that was set on 12 May, the stock has dropped 72.4% from the 52-week high of $52.79 that it reached on 13 September last year.

Box-office momentum builds

Back in May, the cinema chain reported an improved adjusted EBITDA, with losses narrowing from $294.7m in Q1 2021 to $61.7m in Q1 2022. Attendance revenue was $785.7m which is up more than five-fold on the $148.3m recorded in the year-ago quarter.

Operating cash burn for the three months to the end of March was $223.9m, down from $321.6m a year ago. The company is expecting cash burn to have improved sequentially in Q2, but to remain relatively weak before picking up in the second half of the year. Operating cash generation is forecast to turn positive in the fourth quarter.

Box-office momentum started to build in the first quarter and the company is confident that the trend continued in Q2, partly thanks to the releases of Doctor Strange: In The Multiverse Of Madness, Jurassic World Dominion, Pixar’s Lightyear and Top Gun: Maverick.

“Knowing the timing of when the big movies would be released this year, we said then that the industry box office would rise markedly in calendar year 2022, but that most of the strength would occur in the second half of 2022,” Aron said on the Q1 earnings call.

Keeping AMC relevant

Regardless of earnings, the key for Aron is how to keep AMC relevant beyond the Q2 report. In March, it invested $27.9m in Hycroft Mining [HYMC] for a 22% stake, a surprise move that helped to keep the meme stock in the news.

Macquarie analyst Chad Beynon told the Financial Times in March that Aron’s approach “has always been about marketing. He is trying to save the company”. If it can’t blow short sellers out of the water with stellar earnings, then it has to rely on gimmicks and left-field moves like the Hycroft acquisition to support AMC Entertainment’s share price.

In the long term, there are question marks over the company’s valuation. According to Rapid Ratings, which analyses the financial health of public companies, AMC is weak on its fundamentals: medium-term sustainability, which is based on operational efficiency, and short-term default risk.

Rapid Ratings CEO James Gellert told MarketWatch last month that the company’s cash position is fine for this year, but its “fuse life” is burning and problems could spark in 2023. “If they work through too much of their cash before they can fix all of the operational problems in their business, that’s when bankruptcy becomes a real risk,” Gellert warned.

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