Investors are once again checking out Redbox Automated Retail LLC, potentially giving the DVD-kiosk company a new lease on the future.
Having spent a good portion of 2022 trading between $1 and $3 per share, Redbox's stock has shot up in recent weeks and closed on May 2 at $8.53. Investor interest was so volatile that trading was paused and subsequently resumed on May 2, when volume activity peaked at 159.9 million shares. Volume settled below 60 million shares daily on May 3 and May 4, but remained well above the previous 65-day average volume of 5.1 million shares.
The boost in Redbox trading appears to be driven by retail trends similar to those that launched AMC Entertainment Holdings Inc. and GameStop Corp. into the headlines during the "meme stock" phenomenon in early 2021. Not unlike those companies, Redbox's financial and operational fundamentals are under pressure from secular market forces, but some analysts believe the bump in equity value could provide a loophole for Redbox to survive its digital-transformation strategy.
"We believe the significant stock price move in recent weeks — which, we acknowledge, has more than likely been aided by the growing appeal to retail investors — also opens the door for RDBX to re-accelerate digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options," B. Riley Securities analyst Eric Wold said in a note on the stock volatility.
The prospect of increased equity capital comes at a time when Redbox is desperate for relief. The company on April 15 filed an annual report as shares traded around $2 apiece. The report showed troubled results, extending multiyear declines in key metrics. The company also reiterated "substantial doubt" about its ability to persist as a going concern and said it had been exploring a range of strategic alternatives.
Revenue for the full year landed at $288.5 million, down 47.2% over 2020, which was down 36.4% from 2019.
After its earnings report, the company said CFO Kavita Suthar is stepping down. Suthar in 2021 led Redbox through its unconventional IPO process. In filings related to that transaction, the company said it expects to grow revenue to $1.11 billion by 2023. The bullish expectations hinged on converting a material portion of its 40 million DVD-kiosk customers to streaming customers.
"The longer it takes Redbox to convert its loyal kiosk customers to digital, the higher the risk that it will lose the opportunity to do so," Wedbush Securities analyst Alicia Reese said in a note following the company's April earnings results.
Adding to the uncertainty, the company declined to provide 2022 guidance along with its results. The company's 2021 net loss widened to $140.8 million from $69.5 million a year prior. Its total debt climbed to $321.6 million.
To continue to remain solvent, Redbox in January drew down the remaining balance on its revolving credit facility, and it also reduced its workforce by 150 employees, which will save the company an estimated $13.1 million in annual operating costs. Also, the company managed to secure an additional $50 million in financing, which Wold said is crucial to its near-term survival.
"We expect this to provide a runway for RDBX to sustain operations until the business rebounds and cash flows improve," Wold said, saying the $50 million is "roughly double" what he estimated the company would need to make it through a rebound of film titles in the spring and summer.
As an entertainment business, Redbox was hard hit by the pandemic as studios paused releases of new films into theaters. New blockbuster titles are now being released as moviegoers return to theaters, and analysts believe this will boost Redbox's top and bottom lines in the near-term future.