The nation’s largest movie theatre chain in the country has had an exciting week. Following months and months of darkness, AMC theaters are hoping to be able to weather the pandemic. Since hinting at the possibility of bankruptcy only a month ago—without a cash infusion—the theatre giant appears to have enough cash to make it through 2021.
A cash infusion of $917 million from investors seems to have saved AMC from the worst. The company’s CEO, Adam Aron, says that “talk of an imminent bankruptcy for AMC is completely off the table.” This was announced only days ago, but even more noteworthy is how Reddit users came to the company’s aid.
The economics of what happened is slightly complicated. While I’m not Margot Robbie or Ryan Gosling, I’ll try my best. An extremely imprecise and short summary (no pun intended) would be that Wall Street bros made a bet using a financial instrument called a short call option, which in the crudest terms meant that if the stock (AMC, GameStop, whatever else it happens to be) goes down, they make money. However, if the stock goes up, they lose money. That’s exactly what reddit did. They made the stock go up. A lot.
Called a short squeeze, Reddit users collected together and bought tons of shares of AMC, causing the stock price to skyrocket and the Wall Street bets to fail. However, since the company hasn’t produced anything new or had new earnings, this high price is unlikely to last. Phew! That wasn’t so bad, was it? And if you really need Margot Robbie to explain it you, settle for this instead:
But what does this all mean for AMC? While their cash infusion is a great sign—and the stock increase may help—it will still take years for the company to recover. However, this is also a strong show of public support. It is open rebellion against finance bros betting and hoping that the biggest movie theatre chain in the country will fail. While some have criticized the act as a ‘Ponzi scheme’, others have lauded the act as taking back power from Wall Street.
Wherever you stand on the issue, one thing is clear: the internet is real. The internet is powerful. And they’ve just learned economics.