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How Redbox became Wall Street’s darling once again

It wasn’t long ago that some movie fans discovered that the easiest and cheapest way to watch movies in a post-Blockbuster world was to rent DVDs from Redbox kiosks at the drugstore and other retailers. But the rise of Netflix and other streaming services all but killed that business.

But Redbox is back. He built his own streaming operation. And the company’s stock is inexplicably one of the hottest on Wall Street, even with the fall of Netflix.

Redbox shares are up more than 20% this year, around 55% last month and nearly 200% in the last three months. This is in stark contrast to Netflix’s 70% drop, the worst stock on the S&P 500. Disney, which has its own Disney+ streaming service, is down 40%.

Other media companies with streaming services, including Paramount Global, owner of Peacock, Comcast and CNN parent Warner Bros. Discovery, which owns HBO Max and Discovery+, also dropped sharply in 2022.

Now, there is concern that there are too many streaming services chasing too few customers. Apple and Amazon also have streaming services. Disney also owns Hulu. And consumers may be cutting back on non-essential monthly subscriptions as recession fears mount.

So why is Redbox thriving? It is a little complicated.

Redbox went public through a merger with a Special Purpose Acquisition Company (SPAC) in October. The company was previously owned by private equity giant Apollo Global Management, which took Redbox parent Outerwall private in 2016. Outerwall also owned Coinstar, another retail relic.

Redbox is now planning to merge again, this time with video-on-demand company Chicken Soup for the Soul, which owns the Crackle streaming service. Chicken Soup for the Soul bought Crackle from Sony in 2020.

But Redbox has also been targeted by short sellers, investors (mostly hedge funds) who bet a stock will go down. More than 30% of the company’s available shares were being sold at the end of May, a very large amount.

And it’s the interest of short sellers, interestingly, that could be helping Redbox shares lift.

It looks like Redbox has become a favorite of the Reddit stock-buying meme crowd. It’s those investors who helped propel GameStop, AMC and, more recently, the bankrupt makeup giant Revlon.

A quick look at the RDBX subreddit shows that the company is getting support from individual investors who are buying the stock to “squeeze” short sellers.

When a heavily shorted stock rallies, it inflicts more pain on short sellers. This is because short sellers borrow shares and sell them with the hope of buying them back at a lower price before returning them. They pocket the difference as a profit. But if the price goes up, short sellers could lose a lot of money.

Some fans on Reddit are predicting much higher prices for Redbox. There’s even the now obligatory reference to Redbox as a MOASS — Mother of All Short Squeezes. That same acronym was also used to publicize GameStop and AMC.

The problem with this acting is that it rarely lasts long. Redbox is now rapidly losing steam.

The shares fell more than 10% on Thursday to around $9 and are now about 40% below a recent high of just under $15 a share in mid-June. Redbox’s grip might have been fun while it lasted, but make no mistake: the company isn’t the next Netflix or Disney.

Source: CNN Brasil

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