Avoid AMC Entertainment; Investors snap up metaverse real estate in a virtual land boom; Scott Galloway: Inflated; Greetings from Quito

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:

About 49% of pre-pandemic moviegoers are no longer buying tickets. Some of them, roughly 8%, have likely been lost forever. To win back the rest, multiplex owners must "urgently" rethink pricing and customer perks in addition to focusing on coronavirus safety.

Those were some of the takeaways from a new study on the state of the American movie theater business, which was troubled before the pandemic – attendance declining, streaming services proliferating – and has struggled to rebound from coronavirus-forced closings in 2020. Over the weekend, ticket sales in the United States and Canada stood at roughly $96 million, compared to $181 million over the same period in 2019.

The study, published online on Monday, was self-commissioned by the Quorum, a film research company led by David Herrin, the former head of research for United Talent Agency; Cultique, a consultancy run by the longtime brand strategist Linda Ong; and Fanthropology, which describes itself as a research, strategy and creative agency. They intend to run the survey once a quarter.

"The research clearly shows that theaters are suffering because the pandemic intensified, accelerated, amplified all of the nascent trends that were already underway," Ms. Ong said. "That is the definition of a perfect storm – not that various problems exist at the same time, but that they have an intensifying effect on each other."

The nascent trends? Rising ticket and concession prices. Decreasing "experiential value," including the perception that moviegoing has become a hassle. The run-down state of shopping malls, which house many theaters. A generational shift toward streaming, gaming, and other smartphone-based entertainment. "Before, maybe you went every now and again – overlooking the drawbacks," Mr. Herrin said. "Now you add safety concerns to that mix, and you suddenly become a former filmgoer."

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:

The latest hot real estate market isn't on the scenic coasts or in balmy Sunbelt cities. It's in the metaverse, where gamers are flocking, and digital property sales are setting new records.

A growing number of investment firms are acquiring digital land in worlds such as the Sandbox and Decentraland, where players simulate real-life pursuits, from shopping to attending a concert. They are betting that individuals and companies will spend money to use virtual homes and retail space and that the value of properties will increase as more people join the worlds.

Investors' interest in virtual real estate got a boost last month after Facebook (FB) renamed itself Meta Platforms and said it would focus on online worlds, commonly called the metaverse.

That interest reached a new peak on Tuesday when Republic Realm, a firm that develops real estate in the metaverse, said it paid $4.3 million for land in the world Sandbox, the biggest virtual real-estate sale publicized to date, according to the company and to data from the website NonFungible.com, which tracks digital land sales.

Republic Realm bought the digital land from videogame company Atari, and the two firms said they plan to partner on the development of some of the properties.

That acquisition broke a record set just last week by a subsidiary of Canadian investment firm Tokens.com, which said it paid around $2.5 million for land in the world Decentraland's Fashion District.

"This is like buying land in Manhattan 250 years ago as the city is being built," said Andrew Kiguel, chief executive of Tokens.com.

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

Investors were watching, too. Preparing for a digital land boom that appears just months away, they are snapping up concert venues, shopping malls, and other properties in the metaverse.

Interest in this digital universe skyrocketed last month when Mark Zuckerberg announced that Facebook would be known as Meta, an effort to capitalize on the digital frontier. The global market for goods and services in the metaverse will soon be worth $1 trillion, according to the digital currency investor Grayscale.

The metaverse comprises multiple digital realms. Each is like a 3D virtual city where avatars live, work, and play. Anyone who has been exposed to popular video games like Fortnite, Animal Crossing, and the Roblox universe has had a taste of what these realms look like. In each, elements including virtual reality, streaming video, mobile gaming, avatars, and artificial intelligence are combined into immersive digital experiences.

But real estate investing in the metaverse still is highly speculative, and no one knows for sure whether this boom is the next big thing or the next big bubble.

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 (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 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 (CRM), Facebook, and Google (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:

The best things in my life – kids who made the head's list this semester, a supportive mate, and financial security that (generally) enables me to do whatever I want, whenever I want – are a function of one thing: 74. Specifically, in the 80s, UCLA had an acceptance rate of 74%. I (no joke) had to apply twice. I was the first person on either side of my family to graduate from high school, much less get to attend amazing institutions for undergraduate and graduate degrees. The cost? $7,000 (total) in tuition for a BA and an MBA.

In addition, I was presented this opportunity as a function of being good, not great... much less remarkable. Higher ed catalyzed an upward spiral of prosperity for me and my family that's been good for the commonwealth – we love America and are good citizens.

Today the acceptance rate at UCLA is 12%. Since I graduated, the number of graduating high school seniors in California has grown nearly twice as fast as the number of undergraduate seats at UCLA. To its credit, the UC system has announced plans to add 20,000 more seats to the system by 2030.

At night, alone with the dogs, I hear voices. (No shit.) Not strange voices like the dogs telling me to head to Kroger's in my underwear. But the voices of millions of kids who have one question: "Boss, you got yours, where is mine? When do I get my shot?" America is not about making the children of rich people and the remarkable billionaires but giving everyone a shot at being a millionaire and/or making a contribution. American higher ed has become un-American. We need to fall back in love with the unremarkables and return to America.

4) Upon my arrival in Quito, Ecuador last night, I had two things go haywire right away. First, they asked to see my COVID-19 test, which Ecuador's website clearly stated wasn't required of vaccinated travelers. Just to be sure, I had texted my guide, who had arrived on Wednesday, and he confirmed it.

However, due to the omicron variant, Ecuador just changed its policy. But fortunately, they had quick, free testing at the airport, so I was only delayed by 20 minutes.

After passing through customs, I went to pick up my big yellow duffel bag with all of my climbing gear and was pleased to see it was right there on the carousel.

But when I went to grab it, I realized it wasn't mine! It was an easy mistake to make because it was the same color, size, and brand, as you can see in this picture (mine is on the left):

However, if you look closely (or even not so closely), you can see that the bag on the carousel was all scuffed up, whereas I just bought mine, so it’s in mint condition. But even so, I had to check the identification tag to make sure it wasn't mine.

So I waited... and waited... for roughly 15 minutes, but no other bags came, and finally, I realized what must have happened: The owner of the other bag, Tara (according to the ID tag), must have grabbed my bag and left!

After thinking for a minute, I went to the security people who were checking everyone leaving the baggage claim area and, using my very rusty Spanish, asked if they remembered a woman leaving half an hour earlier with a huge yellow bag.

Sure enough, they remembered Tara and let me out to look for her, but she'd already left.

When I returned, I asked if I could take her bag with me to my hotel and promised to contact her so we could switch bags (her phone number and e-mail address were on the tag). To my surprise, they said yes, so I hopped in a taxi.

I texted my guide, Paul, to let him know what happened, and it turns out he knows Tara! She works for a company that he's guided for in the past, so he and I both called, texted, and e-mailed her, but she hadn’t turned on her phone.

Paul cleverly thought to call her guiding company in Seattle and discovered that she was staying at a hotel that was only a five-minute walk from ours. So when I arrived, he took my bag over to her hotel – and ran into her in the lobby. She'd taken my bag to her room, finally realized it wasn't hers, and returned to the lobby to figure out what to do.

So they swapped bags, and I'm now good to go!

The lesson here, of course, is that even if you have an unusual-looking bag, always check to make sure it's yours!

Another idea from a couple of my friends is to tie a colored ribbon to the handle of your bag to distinguish it from others that might look similar...

5) I met up this morning with Paul and the other five people on this trip – two pairs of guys from the U.S. and a Lithuanian woman who lives in Belgium – for a tour of the city. We're already acclimatizing for our upcoming climbs as Quito sits at an elevation of 9,350 feet (it's the second-highest capital in the world after La Paz, Bolivia, at 11,942 feet). Here are a few pictures:

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.