Shares of Redbox Entertainment Inc. dropped more than 50% Wednesday after the DVD-rental company warned of various recent pressures to its business.
During the fourth quarter, the company witnessed fewer theatrical releases than it had anticipated and also felt disruptions due to the omicron variant, it disclosed in a filing with the Securities and Exchange Commission Wednesday morning.
“As such, Redbox RDBX, -52.16% rentals have not recovered to the extent expected and, notwithstanding the year-over-year increase in new releases, were lower than the fourth quarter of 2020,” the company said in the filing.
Redbox has also been trying to “expand its business and transform into a multi-faceted entertainment company,” and saw various costs increase during the fourth quarter and into the start of 2022 as a result. The company pointed to greater marketing and on-demand spending, and saw rising costs from content purchases as well.
In the fourth quarter and into the new year, those “increased costs have not been offset by an increase in revenues,” the company continued. At the same time, competitive pressures have risen at the hands of both new and existing players.
Redbox borrowed the remaining amount that was available under its revolving credit facility on Jan. 28, per the filing. The company is “actively taking steps” to lower costs and grow revenue, while also “evaluating a variety of strategic alternatives.”
B. Riley analyst Eric Wold wrote later Wednesday that while he still sees “a positive setup for improving physical rental trends and operating results” when looking to the second half of the year, Redbox’s filing “made it increasingly clear that the lack of new titles has kept consumers from returning to their prior rental patterns and forced a higher level of promotional activity.”
Nonetheless, he still sees an “attractive market for lower-cost physical rentals into demographics that are either late technology adopters or that prefer lower price points for their entertainment.”
Wold has a buy rating and he said that his $35 price target is “under review” until he gets a clearer picture of the company’s financial position, likely during its next earnings call.
The stock recently changed hands south of $3. The company went public in October through a merger with a special-purpose acquisition corporation that was announced earlier in 2021.
Shares have lost more than three quarters of their value over the past three months, as the S&P 500 SPX, +0.94% has dropped 0.8%.