Share shares of consumer-oriented memes AMC Entertainment (AMC -8.20%), fuboTV (FUBO -11.65%)AND All the birds (Bird -6.27%) dipped Wednesday, down 9.3%, 12.3% and 7.2%, respectively, as of 12:10 a.m. ET.
Short meme stocks like AMC and fuboTV performed well over the past month, as did many newly public companies like Allbirds that went public through a special purpose acquisition company (SPAC). After stocks fell in the first half, the low share prices of these companies combined with high short interest brought meme traders back into the fold in July and August.
However, these types of stocks are volatile, both on the upside and downside. Today, it looks like a risk-on mentality is seeping into the markets, with UK inflation data surprising on the rise, US retail sales data disappointing, retailers The aim (TGT -1.93%) worse-than-expected sales reporting and general anxiety ahead of the Federal Reserve’s July minutes due out this afternoon.
Finally, fuboTV received a downgrade from a Wall Street analyst after its investor day yesterday, taking some of the air out of this high-flying stock.
It should be noted that today’s big moves came on the heels of big increases in meme stocks, especially for AMC and fuboTV. Even after today’s pullback, fubo is up more than 153% month to date, with AMC up around 70%. Allbirds, despite a big pullback after earnings earlier this month, is still up more than 2% on the month.
After such a big move, investors were surely looking for excuses to take profits, and Wednesday had several reasons for that, when taken together. First, in contrast to the US, the UK continued to record rising inflation, reaching 10.1% in July compared to the year-ago period. Even the UK’s “core” inflation rate of 6.2% was materially higher than the 5.8% figure posted in June.
None of this is particularly good for the European or UK economy, as inflation appears to be taking more root there. While each of the above companies are primarily American companies, AMC actually has a significant European theater business, including in the UK, and Allbirds distributes internationally, including in Europe and the UK. Meanwhile, while fubo does not currently offer its service in UK. it has begun to expand in Europe, with operations in Spain and France.
Back in the US, major retailer Target reported earnings today, missing both revenue and earnings expectations. Remember, yesterday’s results better than the fear of Walmart prompted a rally in consumer discretionary stocks yesterday on the theory that the US consumer was in better shape than it should have been. However, it is possible that Walmart’s success comes from higher-end consumers “trading up” to lower-cost retailers like Walmart. That wouldn’t necessarily be a good thing for consumers spending a night at the movies, a nice pair of Allbirds shoes, or for advertising budgets, which affect fuboTV. So retail and consumer discretionary names fell back to earth after yesterday’s gains.
US retail sales figures for July also came in slightly lower than forecast this morning, though not by much. July retail sales were unchanged, slightly behind expectations for a 0.1% increase. Excluding fuel and cars, consumer spending rose 0.7% month-on-month, versus 0.8% in June. While it wasn’t a material shortfall, these retail sales numbers weren’t helping to offset the other news.
Regarding the specific developments for the company, yesterday fuboTV also held the investor’s day. Beaten stocks rallied in a big way heading into this event, so there may be some “sell the news” going on here.
Additionally, Wedbush analyst Michael Pachter downgraded the stock today, saying, “Despite all the company’s bold targets aired at its investor day, fuboTV needs to raise capital and cut cash burn rapidly or will be out of money within a year… While we’re sure they can do both, it’s uncertain how dilutive capital growth will be and how quickly their burn will improve in money”.
With the economy flirting with a recession and analysts divided on how big a decline we’ll see — combined with speculative, money-losing stocks that have fallen so much this year — investors should expect these stocks to be very unstable as they seek direction. Any hint of good news or easing on the inflation front could lead to a massive short rally. On the other hand, the longer this slowdown continues, the more money-losing companies will come under pressure.
That’s because when a company is losing money, it’s “on schedule” to either become profitable or raise more money. Now is a really, really bad time to raise money, so these companies may need to rein in spending, which could impact growth. AMC, for its part, is trying to make ends meet for its shareholders by issuing a new class of preferred stock under the ticker symbol APE in a bid to raise more capital.
Basically, these types of stocks remain highly speculative plays on good market news. The fundamentals of each remain very uncertain, amid rising inflation and sluggish consumer spending. Moreover, the need to raise more money in the future is another risk that hangs over everyone. They remain buys only for those looking to speculate, and not for older or long-term fundamental investors.