NEWS ANALYSIS: Redbox’s ‘Meme Stock’ Rollercoaster Ride Continues

Another day, another premarket rally for Redbox Entertainment shares, which surge and drop like a rollercoaster amusement ride. The legacy kiosk disc rental company’s shares have become a meme stock, subject to the whims of mob rule among day traders and short squeezers transacting more than 20 million shares daily — and little to do with the company’s fiscal fundamentals.

The ongoing drama plays out against the backdrop of a corporate merger that would see AVOD operator Chicken Soup for the Soul Entertainment acquire Redbox for $375 million. With Redbox shares up more than 12% in June 16 trading, the company’s market cap is approaching $500 million — making the deal appear undervalued on paper.

Earlier this month, Redbox, in an effort to raise funding for capital expenses, issued a regulatory filing for separate warrants to acquire millions of new Class A Common stock. The move resulted in a modest bump in the share price and was seen as a positive by B. Riley Eric Wold.

“Given our continued belief in the opportunity for the Redbox kiosk network to address the ongoing content needs of the target demographic (e.g., late technology adopters and price-sensitive consumers) — especially in an environment where SVOD platforms are beginning to hit a subscriber wall — we saw the value of additional financing to help [Redbox] get past the current content drought,” Wold wrote in a note.

Wold contends the extra financing could expedite the “digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options.”

Regardless, six days later, Redbox disclosed it would be giving separate bonuses of $550,000, $300,000 and $250,000 to CEO Galen Smith, chief digital and strategy officer Jason Kong, and chief operating officer Michael Chamberlain, respectively, should they remain with the company following consummation of the Chicken Soup for the Soul Entertainment deal.  The executives still get the bonuses if they are terminated post-ownership change.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Redbox Shares Skyrocket 58% in Early Trading

Redbox Entertainment’s fiscal rollercoaster continued with a jolt May 2, with shares skyrocketing 58% to open at $9.77 per share in heavy trading of more than 78 million shares. The average daily trading volume has been around 5.3 million shares.

While Wall Street’s renewed interest in Redbox isn’t underscored by any particular fiscal fundamental, some analysts contend the company has become a meme stock, with individual investors swarming around a low-priced investment that is fluctuating, benefitting short sellers, or investors betting the share price will drop.

B. Riley & Co. analyst Eric Wold

Subscribe HERE to the FREE Media Play News Daily Newsletter!

Regardless, the venerable DVD kiosk vendor is transitioning its business focus away from packaged media rental to digital distribution, including transactional VOD and ad-supported streaming. The service lost $140 million in 2021 but generated more than $35 million in digital revenue. Separately, the company said it gained access to an additional $50 million in credit, which was music to B. Riley & Co. analyst Eric Wold.

“Given our continued belief in the opportunity for the Redbox kiosk network to address the ongoing content needs of the target demographic (e.g., late technology adopters and price-sensitive consumers) — especially in an environment where SVOD platforms are beginning to hit a subscriber wall — we saw the value of additional financing to help [Redbox] get past the current content drought,” Wold wrote in a note.

The analyst believes the new credit line could help Redbox further realize its digital business.

“Digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options,” Wold wrote.

Analyst: Perfect Re-Opening Date for Theaters, Studios ‘May Never Arrive’

With surges in coronavirus around the country, including California, Florida and Texas, beleaguered movie exhibitors face the daunting prospect of further delaying re-opening operations to the public.

Eric Wold, media analyst with B. B. Riley FBR, is cutting his share price for AMC Theatres, Cinemark and Imax, underscoring what he contends has become an imperfect world for exhibitors facing leery consumers and a dearth of new-release content from trigger-shy studios.

“We are less certain that studios will wait for the perfect date to release their films — as that perfect date may never arrive,” Wold wrote in a July 15 note.

Follow us on Instagram

Indeed, Disney and Warner Bros. have pushed back further major releases such as Mulan and Tenet, while Universal Pictures is actively courting premium VOD and home entertainment channels for select titles. Paramount just licensed the scuttled box office sequel The SpongeBob Movie: Sponge on the Run to Netflix internationally while it readies a domestic PVOD release in 2021.

The analyst believes that if the current situation continues, the domestic box office will decline 75% in the current third quarter (ending Sept. 30) and 50% in Q4 compared to 2019. Wold says ongoing uncertainty and theatrical release delays will drop the 2021 box office revenue more than 20%.

Subscribe HERE to the FREE Media Play News Daily Newsletter!

“Waiting for every major market to have optimal reopening rules for movie theaters (especially around capacity limits), may end up pushing most, if not all, titles into 2021,” Wold wrote. “And if studios are concerned around the health of their exhibitor partners, they may not choose to wait much longer.”