Equities

GameStop, AMC Fall 19% and 14% as Meme Rally Fades

GameStop, AMC stocks plummet as latest meme rally fizzles, with strategic financial moves amidst volatility.

By Barry Stearns

5/16, 07:40 EDT
AMC Entertainment Holdings, Inc.
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Key Takeaway

  • GameStop and AMC stocks plummet, with drops of 19% and 14% respectively, as the latest meme stock rally falters.
  • AMC leverages rally to reduce debt by $164 million and raises $250 million through equity offering.
  • Analysts cite changed market conditions from 2021, including lower short positions and higher interest rates, impacting meme stock volatility.

Meme Stock Volatility Resurfaces

GameStop Corp. and AMC Entertainment Holdings Inc. experienced significant declines for a second consecutive day, marking a notable downturn in the meme stock phenomenon that had re-emerged earlier in the week. GameStop's shares dropped by as much as 19% in early trading on Thursday, while AMC saw a decrease of 14%. This recent activity echoes the meme stock frenzy of early 2021, driven by retail traders and social media influencers like Keith Gill, known online as “Roaring Kitty.” Gill's recent post on X contributed to sparking this latest wave of volatility. The initial surge earlier in the week had doubled the share prices of both companies, adding approximately $11 billion in market capitalization, before beginning to decline on Wednesday.

Financial Maneuvers Amid Rally

During the rally, AMC took strategic financial actions by completing an at-the-market equity offering and entering a private deal to swap shares for debt reduction. Specifically, AMC aimed to cut about $164 million of its debt through a private transaction that valued its stock at $7.33 per share. Additionally, AMC raised roughly $250 million by selling 72.5 million shares at an average price of $3.45 each. These moves came as the company's stock price ended at $5.48 on Wednesday, following a significant rally.

Analyst Perspectives on the Downturn

The downturn in meme stock prices has drawn commentary from market analysts. Ben Laidler, a global markets strategist at eToro, noted that the conditions fueling the 2021 surge, such as the pandemic lockdown and excess consumer savings, have changed. He pointed out that short positions in these stocks are smaller, and interest rates are higher, suggesting a different market environment. Additionally, Rob Ginsberg from Wolfe Research highlighted technical signals indicating that the meme stock rally, driven by a short squeeze, might soon reverse. Ginsberg's analysis suggested that the stocks could face a sharp downturn, as evidenced by previous patterns and the current resistance faced at long-term highs.