Avoid AMC Entertainment Metaverse Real Estate Selling Like Hotcakes

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Whitney Tilson's email to investors suggesting to avoid AMC Entertainment Holdings Inc (NYSE:AMC); investors snap up metaverse real estate in a virtual land boom; Scott Galloway: Inflated.

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Q3 2021 hedge fund letters, conferences and more

The Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More

• 1. Avoid AMC Entertainment
• 2. Investors Snap Up Metaverse Real Estate
• 3. Scott Galloway On Inflation

1) The 25 stocks in my 'Short Squeeze Bubble Basket ' that I identified in my January 27 e-mail have declined by an average of 34%, while the S&P 500 Index has risen by 22% – 56 points of underperformance.

However, one notable exception is the largest movie theater operator in the world, AMC Entertainment (AMC), which is up 52% since then.

So am I throwing in the towel and admitting a mistake?

Heck no!

This article is a good summary of why AMC continues to be among my least favorite stocks: Movie theaters must 'urgently' rethink the experience, a study says . Excerpt:

I, for one, have yet to return to a movie theater, even as pretty much every other aspect of my life has gone back to normal (sporting events, Broadway shows, etc.). I was actually planning to see the new movie about Venus and Serena Williams' father, King Richard , but then saw it was released simultaneously on HBO Max, so my wife and I just watched it at home (and loved it). This new development is very bad news for AMC...

2) I'm no longer in the short-selling business (thank goodness!), but if I were, I'd feel perfectly comfortable shorting AMC, especially now that it's already been pumped to the moon by the Reddit speculators and subsequently crashed (it's down nearly 60% from its all-time high on June 2).

While, as we've seen, it could trade anywhere in the short term. At the end of the day, its stock will ultimately be valued on the performance of the underlying business, which I believe will be dreadful relative to the expectations built into its current $15 billion market cap and $24 billion enterprise value. I don't even think the company is worth $9 billion in net debt, meaning the stock will eventually be worthless.

But as an old-school value guy, I take zero comfort in evaluating things like cryptocurrencies, non-fungible tokens ('NFTs'), and the latest craze, buying real estate in the metaverse.

I'm not making this up – here are two recent in-depth articles about it in the Wall Street Journal and New York Times, respectively:

a) Metaverse Real Estate Piles Up Record Sales in Sandbox and Other Virtual Realms . Excerpt:

b) Investors Snap Up Metaverse Real Estate in a Virtual Land Boom . Excerpt:

My knee-jerk, old-school-value-guy reaction is that this is an obvious and ridiculous bubble, but I've been humbled too many times to have any conviction in that judgment.

So I'm just going to defer to my colleagues Enrique Abeyta and Gabe Marshank, who have already done a deep dive into the metaverse. In fact, they recommended one of the leading companies in the space, Roblox Corp (NYSE:RBLX), to their Empire Elite Growth subscribers in September, and it's already up 38%. (Click here for a free trial to Empire Elite Growth.)

3) Run, don't walk, to read NYU professor Scott Galloway's latest column, Inflated . It's the essay of the year, I think. It should be required reading for everyone interested in our higher education system, starting with college administrators. Excerpts:

• In 1980 a gallon of gasoline cost $1.19. Today it's $3.41, a 2.7% annual increase. But undergraduate tuition has risen nearly 3 times as fast: 6.7% a year at public colleges, for an increase of nearly 1,400%. The greatest assault on middle-class America's prosperity may be the relentless, four-decade-long inflation in higher education. Student loan debt ($1.7 trillion) is now greater than credit card debt. And that doesn't account for the busted 401(k) s, second mortgages, and general financial oppression [that] me and my colleagues have levied on lower- and middle-income households. The number of Americans who have more than $100,000 in student debt is greater than the population of Utah.

This sustained inflation has been devastating for lower- and middle-income households.

• Higher education's ability to soak America is a function of limiting the supply of freshman seats at our best universities in concert with the continued fetishization of their brands. We can scale Salesforce (NYSE:CRM), Facebook (NASDAQ:AAPL), and Google (NASDAQ:GOOGL) by 25% to 60% per annum, but we can't seem to bust above 1% per year at our great public universities. The top 200 schools in America educate only 10% of college attendees. And these universities raise prices in perfect lockstep, miraculously, resulting in millions of kids who get arbitraged to mediocre universities but pay an elite price. It's a cartel enforced by the accreditation organizations, institutions who are as corrupt as the NCAA... minus the charm.
• Acceptance rates have plummeted, turning senior spring from a time of optimism and opportunity to one of anguish and sacrifice. Kids are still getting into college (total enrollment has kept pace with the growth in graduating seniors), but more and more are shuffled down to lower-tier schools that charge a top-tier price for a credential worth far less.

College deans boast about low admissions rates. But if you accept five of every 100 applications, that's not a 5% admission rate. It's a 95% rejection rate.

This is un-American.

• Rejectionism is cloaked in progressive policies. It's true that the student body at these institutions is more diverse than it was 40 years ago. And that's great. But it's not an excuse for maintaining a rejectionist posture. The mission is to expand opportunity, not reallocate elites. Bigotry is prejudice against a person or people on the basis of their membership in a particular group. Haven't we in higher education become bigoted against unremarkable kids from lower- and middle-income households?

I love his personal story at the end – it was a similar story for my mom, the daughter of a Seattle fireman, who graduated from the University of Washington in 1962:

Best regards,

Whitney

P.S. I welcome your feedback at [email protected] .

Updated on Dec 3, 2021, 3:13 pm

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