Analysts say the company is seeing new interest from retail investors and looks to be in a more comfortable spot after a financing arrangement
Shares of Redbox Entertainment Inc. were continuing their massive surge Monday, which analysts saw as reflective of increased investor comfort in the wake of recent financing announcements as well as heightened interest among retail shareholders.
The company enables people to rent DVDs at kiosks, and it struggled during the pandemic amid a weak stretch for new theatrical releases. In early February, Redbox RDBX, +42.64% disclosed that rental activity had failed to recover as quickly as expected, while costs were rising, but it then announced in mid-April that it had secured $50 million in additional financing that was seen by some as a cushion ahead of an anticipated rebound in business trends later in the year.
“While we have remained positive on the opportunity for RDBX [Redbox] to monetize a customer demographic that, we believe, has remained firmly in place during the pandemic (i.e., late technology adopters and price-sensitive consumers), it was a need for financing to get the company through the current movie-title dry spell that pushed the stock down to the $2 level (with bankruptcy a definite possibility at that time),” B. Riley Securities analyst Eric Wold told MarketWatch.
The financing came with better terms than expected, Wold continued, allowing investors to “focus on both the recovery of the physical rental business in the second half of the year” as well as Redbox’s advertising-based video-on-demand service, which he thought could be set up for continued growth as some subscription video-on-demand services stumble.
Redbox might also be winning the attention of a new crowd of investors, as it’s currently a trending name on Stocktwits, a platform that lets investors discuss stocks. It “looks like this is driven by retail shareholder interest, similar to what we’ve seen with GameStop and AMC over the past several months,” Wedbush analyst Alicia Reese told MarketWatch.
Redbox shares were up more than 40% in midday trading Monday after rocketing nearly 70% in Friday’s session.
B. Riley’s Wold also noted the chatter on Stocktwits and suggested that Redbox could use the rally to its benefit, by raising money through the sale of shares.
“With RDBX most likely in a situation where additional capital and a greater stock float could be of a benefit to the company, we would not be surprised if RDBX took advantage of this strong move in the equity in the near future to shore up its balance sheet,” he said.
Redbox went public in October through a merger with a special-purpose acquisition company (SPAC). Its shares had fallen as much as 83% from the point of Redbox’s public debut, while short interest rose, though with the recent rally, shares were down only about 8% over the course of Redbox’s time as a public company.
Though Redbox short interest represents about 15% of the float, short interest is just 1.32 million shares, worth $7.9 million, according to Ihor Dusaniwsky, the managing director of predictive analytics at S3 Partners.
“With today’s trading volume already at 87 million shares, even if every single shorted share was bought back (totally improbable), it would have had a minimal impact on RDBX’s stock price today,” he told MarketWatch.
In comparison, short interest as a percent of float is 22.3% for GameStop Corp. GME, -4.40%, based on the latest exchange data, and is 19.4% for AMC Entertainment Holdings Inc. AMC, -0.26%