Tag: Stock Meme

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.

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Redbox Stock Prices Surges, Possibly Threatening the Chicken Soup for the Soul Acquisition

Driven by social media investors and internet chatter, shares of Redbox Entertainment exploded June 13 in midday trading, surging more than 22% to $18.20 per share as day traders swapped more than 40 million shares — double the peak daily tally.

Similar to the fuss made a few years ago when social media investors sent shares of GameStop and AMC Theatres on wild rollercoaster valuations, scuttlebutt about Redbox on the Reddit WallStreetBets investing forum reportedly surged 400% in the past 24 hours.

Morningstar reported that short interest in Redbox shares reached almost 38% of the float, or the total number of shares that are available for public investors to buy and sell.

The buzz could impact Redbox’s acquisition by Chicken Soup for the Soul Entertainment, which had agreed to buy the legacy kiosk disc vendor based on a valuation of $375 million — not the current $700+ million value.

Regardless, Michael Pachter, media analyst with Wedbush Securities in Los Angeles, contends the entire scenario defies logic. He believes meme investors think that Redbox is worth nearly $1 billion, which includes debt.

“The stock might be up on that, but if my reading is correct, the meme traders are making a huge mistake,” Pachter said in a recent email.

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GameStop Under SEC Scrutiny With Stock Up 1,500% in 2021

GameStop June 10 disclosed it is being investigated by federal regulators from the Securities Exchange Commission — the result of months-long stock volatility that has seen the video game retailer’s shares skyrocket 1,500% in value in 2021.

The retailer said it is reviewing the regulatory request, producing the requested documents and intends to cooperate fully with the SEC.

“This inquiry is not expected to adversely impact us,” GameStop said in a statement.

After raising almost $552 million from the issuance of 3.5 million shares in April, GameStop said it plans to issue another 5 million shares in the near future. The stock, along with AMC Entertainment’s, has become fodder for individual traders fueled by social media and crowdsourced stock moves. Company shares closed June 9 up over $300 a share from little more than $4 per share last July.

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“The trading probe is definitely a big red flag,” David Trainer, CEO of research firm New Constructs, said in a media interview. Trainer characterized the SEC probe as “the needle that can bust the balloon of the stock’s valuation.”

Wedbush Securities media analyst Michael Pachter contends the regulatory investigation is normal in light of the stock jump. But the analyst believes the June 10 morning decline in share price has more to do with the new stock sale.

“We think that the sell-off had little to do with the fundamentals and everything to do with the company’s failure to reveal its strategy,” Pachter wrote in a June 10 note.

Regardless, Texas-based GameStop saw first-quarter sales (ended May 1) increase 25% to $1.27 billion, from revenue of $1 billion in the previous-year period. Net loss narrowed nearly 60% to $66.8 million, from a net loss of $165.7 million a year earlier.

Speaking on his last call as CEO, George Sherman said the increased revenue came despite the closure of 118 under-performing stores. GameStop still operates nearly 4,700 stores worldwide.

Former Amazon executive Matt Furlong becomes GameStop’s new CEO on June 21.

Furlong’s arrival, along with fellow Amazon executive Mike Recupero as new CFO, underlines the fact that GameStop’s the future is online and with ecommerce. The chain is adding 700,000-square feet to a fulfillment facility in York, Pennsylvania.

“This new distribution center, which is expected to be operational by the fourth quarter of this year, will enhance our order fulfillment capabilities on the East Coast,” Sherman said on the June 9 call.