Shares of Redbox Entertainment (RDBX) dropped as much as 51.2% in trading on Wednesday after warning that its business is in trouble. Shares cratered early in the day and are off 47.8% as of 3 p.m. ET.
Redbox filed an 8-K with the Security and Exchange Commission (SEC) that said the company's financial results were hurt more than expected by the lack of new movies in 2021. The pandemic pushed back many theatrical releases and pushed some to streaming services immediately, negating the need to rent movies from Redbox. The company responded by increasing marketing spending, which didn't turn around the trend.
While numbers weren't announced, there were two red flags that alerted investors. The first was the fact that the company borrowed all of its remaining revolving credit facility on Jan. 28, 2022; the second red flag was the statement that it is "evaluating a variety of strategic alternatives." That is something investors don't like to hear and a bad sign for Redbox.
Investors have to be wondering if Redbox can survive long term. As more content moves to streaming, the physical discs that were a hallmark of Redbox have become less important, and the company hasn't found traction in the on-demand business. This isn't a stock I'm buying on today's dip, and I wouldn't be surprised if shares keep falling from here.