Seeking Alpha
What is your profession? ×
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)


AMC’s 180-day lockup period will come to an end on June 15th, freeing up 361,348 shares, held by the firm’s directors and officers.

An additional 77.8 million shares of AMC stock held by Wanda America will remain bound by lockup agreements until December 17, 2014.

While the larger short opportunity for AMC could be in December, the impending June lockup expiration could provide a small window for a short play as well.

The 180 day lockup period that began with AMC Entertainment Holdings (NYSE:AMC)'s December 17, 2013 IPO will come to an end on June 15, allowing the firm's directors and officers to sell their outstanding shares in the firm.

The increase in the supply of AMC shares on the market may lead to a decrease in the price of AMC shares, potentially creating a short opportunity for aggressive investors.

An additional 77.8 million shares of AMC stock held by Wanda America Investment Holding Co, Ltd. will remain bound by lockup agreements until December 17, 2014.

Unsteady Gains After Disappointing IPO

AMC's IPO priced at $18 per share, the low end of its expected price range, and saw a 5% return on its first day. The stock gained steadily through early March, spiking to a close of $25.47 per share on March 7, and has since performed irregularly. AMC closed at $23.00 per share on May 28.

Share Unlocking: Up To 361,348 Shares

The June 15 lockup expiration will free 361,348 shares of AMC for sale, approximately $8.4 million worth of stock based on the May 27 closing price. These shares are held by AMC's executives and directors, who may choose to sell their shares in the interest of diversifying their portfolios or simply raising capital for other endeavors. It will be their first opportunity since the IPO to sell their outstanding shares.

Evidence That Lockup Expirations Offer Short Opportunities

The results of our three years of research, along with published empirical studies by Professors at the University of South Florida, University of Kentucky, and additional institutions (Bradley, Jordan, Roten, and Ha-Chin Yi) have found that, on average, lockup expirations are associated with significant, negative abnormal returns as the sudden increase in the supply of shares on the market usually causes a decline in price. This event often opens a short window for aggressive investors.

Losses are often most concentrated in firms with venture capital (VC) backing. The largest losses have been found to occur for "high-tech" firms and firms with the greatest post-IPO stock price increases, as well as the largest relative trading volume close to the event, and the highest quality underwriters.

A Preview Of AMC's Business

AMC is a famed chain of movie theaters in the United States that has been in business since 1920; the firm has been responsible for numerous silver screen innovations, including the popular Multiplex and Megaplex movie theater formats as well as the recent addition of dine-in theaters and lobby bars. AMC owned and/or operated 343 movie theaters in North America as of September 30, 2013, for a total of 4,950 screens. The firm holds the first or second largest market share in major cities including Los Angeles, New York, Philadelphia, Chicago, and Dallas.

AMC has expanded almost continually throughout its history; in 2010, the firm made headlines by acquiring the Kerasotes theatre chain. AMC was itself acquired by Wanda America Investment Holding Co. Ltd., a subsidiary of Chinese conglomerate Dalian Wanda Group, in 2012. Wanda now holds approximately 80% of AMC.

For additional information, see our preview of the AMC IPO here.

Consolidating Competition

Although the many independent theaters and small chains in United States have led to continued fragmentation in the movie exhibition market, the business has consolidated to some degree in the past decade. The top four exhibitors in terms of box office revenue accounted for 62% of box office revenues in 2012, up from a figure of 35% in 2000.

AMC's major competitors include Cinemark Holdings (NYSE:CNK), Cineplex Inc, Regal Entertainment Group (NYSE:RGC), and Carmike Cinemas Inc (NASDAQ:CKEC).

Solid First Quarter Results

AMC's report for the quarter ended March 31 indicated a number of hopeful metrics for the venerable firm. Total revenues grew 7.8% on a year-over-year basis, and admissions revenues-considered amongst the most important metrics for movie theater chains-were up 6.8%. Food and beverage revenues also grew and impressive 8.2%.

Conclusion: A Short Preview To A Larger Short Opportunity in December

Though relatively few shares are being unlocked on June 15, their release into the market may still be enough to have some impact on the price of AMC.

A larger impact will likely be felt in December, when the massive stake held by Wanda will be unlocked for sale.

We don't recommend this stock as a long-term hold; though AMC has performed relatively well on the market and has outperformed other theater chains in key areas, the long-term prospects of the movie theater industry are not strong.

The rising popularity of streaming services like Netflix (NASDAQ:NFLX), Hulu, and Amazon (NASDAQ:AMZN) Instant Video are keeping audiences at home, and it's hardly clear that the big screen will be able to sufficiently differentiate itself from these services through increasingly expensive "innovations" like dine-in theaters and near-ubiquitous (but often low quality) 3D films.

We invite readers wishing to join the discussion on IPO lockup expirations to click the +FOLLOW button above the title of this article and follow @DRDInvestments on twitter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.