A new ticker graced the New York Stock Exchange this week as AMC debuted a new preferred stock under the “APE” symbol, a nod to the meme stock traders who rescued the movie theatre from death’s doorstep. The movie theater chain’s CEO Adam Aron described the move as “the single biggest action we will take in all of 2022 to fundamentally strengthen AMC for the long term.”

To start, AMC is giving away 517 million APEs for free to its current investors: one APE unit for every AMC share owned. But the company could sell more APEs in the future, and potentially raise billions of dollars.

“If this can help them eliminate the risk of bankruptcy… I think that is a great thing,” said Eric Wold, a senior analyst at B. Riley Securities

How and why did AMC create APE?

By creating APE preferred shares, AMC was able to execute something similar to a stock split, which typically benefits a company by making shares seem more affordable and therefore more attractive to investors.

Preferred stock usually comes with limited powers, but that isn’t the case for APEs, which have economic and voting rights that are equal to those afforded to owners of AMC common stock. So even though they are different types of investments, they won’t functionally be different for the investor.

“The mechanics are a little technical, but the purpose is quite simple, which is that AMC wants to raise more money. And the way to do that is to sell stock,” said Lee Reiners, policy director at the Duke Financial Economics Center.

“[AMC] stock is clearly overvalued by all traditional metrics, so it makes sense to issue more shares to shore up your balance sheet … and because it has become so attractive to meme investors is what makes it all possible.”

Not only could extra cash allow AMC to pay off debts or avert bankruptcy, but the company could also use it to diversify beyond the movie theater business. In 2021, AMC announced the launch its own retail popcorn brand, which will be sold in grocery stores, but it’s also made less obvious plays like buying a majority stake in a distressed gold mining company.

If the company continued to pursue acquisitions disconnected from its core business, Andy Wu, an assistant professor at Harvard Business School, said AMC “would essentially become an asset manager, using the love that people have for AMC to finance its new direction.”

AMC’s CEO wants to reward meme investor loyalty

More so than companies like GameStop or Bed Bath and Beyond, CEO Adam Aron has wholly embraced AMC’s “meme stock” status.

He regularly engages with the “AMC Apes” on social media and at public events. On past quarterly earning calls, Aron has recited quotes from the film “Gorillas in the Mist” and announced donations to conservation funds for endangered gorillas. And he regularly answers questions submitted by shareholders on earnings calls.

“It … probably degrades the quality of the [earnings] calls but optimizes them for the entertainment factor,” said Wu.

“While Wall Street analysts are nit-picking at high level numbers, the retail investors are most interested in what size the popcorn is and if it can be shaped like Thor’s hammer, which is to say, the product.”

Aron also set about creating atypical perks for investors, like original NFTs, exclusive movie screenings and free concessions, recognizing that AMC’s retail investors, who own 80% of the company, are also likely to be an AMC customer.

“We normally think of the stakeholders of a company as being separate groups: shareholders, employees, customers, partners,” said Wu. “For AMC and even companies like Apple and Tesla, different stakeholder groups are becoming one: many customers of the product are also investors in the company.”

“For those customer-investors, their evaluation of the stock follows not necessarily from the numbers in the earnings report, but from their own experience and emotions toward the product.”

Will meme traders’ enthusiasm for AMC wane?

Before retail investors started pouring into the stock, AMC’s share price hovered just above $2. While the share price is nowhere near its peak of $62 in 2021, it is still well above the true value.

“[AMC] is giving the meme stock investors a new thing to play with,” said Reiners. “[It’s] a new stock to gamble on. And that is what is really going on with these meme stocks. It is just gambling.”

“You can’t be a meme stock forever. The apes will move on. They are a fickle bunch.”

But Wu said that it is theoretically possible for a meme stock’s value to become “real” further down the road. “If the management team raises money at its peak valuation to fund a growth strategy that ends up working, the current high price of the shares would not be just a transitory illusion,” Wu said.

“Instead, the irrationally high price could drive its own self-fulfilling prophecy.”

While it’s a possibility, Wu also noted, the likelihood is not high.