Redbox’s Resurgence on Wall Street

It’s not long ago that some moviegoers discovered that renting DVDs from Redbox kiosks at drugstores and other businesses was the easiest and cheapest way to view movies in a post-Blockbuster world. Ah, the early aughts. However, the introduction of Netflix and other streaming services effectively ended that company.

However, Redbox has returned. It has established its own streaming service. And the company’s stock is one of the hottest on Wall Street, despite the fact that Netflix (NFLX) has fallen.

Redbox stock is up more than 20% this year, almost 55% in the last month, and about 200 percent in the last three months. This is in stark contrast to Netflix’s 70% drop, the worst stock in the S&P 500. Disney (DIS), which has its own lauded Disney+ streaming service, is down 40%, making it the Dow’s biggest loser.

Other media businesses with streaming services, including as Paramount Global, Peacock owner Comcast (CMCSA), and Warner Bros. Discovery, which has both HBO Max and Discovery+, have seen their stock prices plummet in 2022.
There is now fear that too many streamers are pursuing too few customers. Apple (AAPL) and Amazon (AMZN) both provide streaming services. Hulu is also owned by Disney. As recession fears mount, customers may be cutting back on non-essential monthly subscriptions.

So, what’s the secret to Redbox‘s success? It’s a little tricky.

In October, Redbox went public through a merger with a blank-check special purpose acquisition company (SPAC). The company was originally owned by Apollo Global Management (APO), who acquired Redbox’s parent company Outerwall in 2016. Another retail antique owned by Outerwall was the Coinstar change-counting kiosk.

Redbox is proposing another merger, this time with the strangely called video-on-demand media company Chicken Soup for the Soul (CSSE), which owns the Crackle streaming service. Crackle was purchased by Chicken Soup for the Soul from Sony in 2020.

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However, Redbox has been a target of short-sellers, or speculators (especially hedge funds) who wager that a company will fall in value. As of the end of May, more than 30% of the company’s available shares were owned short, a significant proportion.

And, curiously, it’s the shorts’ interest that may be helping to increase Redbox shares.

Redbox appears to be a favorite of the Reddit meme stock crowd, the same investors who helped increase GameStop (GME), AMC (AMC), and, more recently, bankrupt beauty giant Revlon (REV).

A brief glance at the RDBX subreddit reveals that the company is receiving support from individual investors who are purchasing the shares in order to “squeeze” the shorts.

When a heavily shorted stock increases, short-sellers suffer more. This is because short sellers borrow shares and then sell them, hoping to repurchase them at a cheaper price before returning them. They profit from the discrepancy. However, if the price rises, the shorts stand to lose a lot of money.

Some Reddit users expect that Redbox’s costs will skyrocket. There’s even the now-required allusion to Redbox as a MOASS (Mother of All Short Squeezes). (The same abbreviation was also used to promote GameStop and AMC.)

The problem with short squeezes is that they rarely last long. Redbox is currently losing steam.

The stock dropped more than 10% Thursday to under $9 and is now down almost 40% from a recent high of just under $15 per share in mid-June. While the Redbox crush was entertaining, make no mistake: the corporation is not the next Netflix or Disney.

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