Shares of Redbox
are up more than 20% this year, about 55% in the past month and nearly 200% in the past three months. That’s in stark contrast to the 70% plunge for Netflix, the worst stock in the S&P 500
. Disney (DIS)
, which has its own the vaunted Disney+ streaming service, is down 40%, making it the biggest dog of the Dow
Other media companies with streaming services, including Paramount Global
, Peacock owner Comcast (CMCSA)
and CNN parent Warner Bros. Discovery
, which has both HBO Max and Discovery+, have fallen sharply in 2022 as well.
Now there is concern that there are too many streamers chasing too few customers. Apple (AAPL)
and Amazon (AMZN)
have streaming services, too. Disney also owns Hulu. And consumers may be cutting back on non-essential monthly subscriptions as recession fears grow.
So why is Redbox thriving? It’s a bit complicated.
Redbox went public through a merger with a blank-check special purpose acquisition company (SPAC) in October. The company was previously owned by private equity giant Apollo Global Management (APO)
, which took Redbox’s parent company Outerwall private in 2016. Outerwall also owned change-counting kiosk Coinstar,
another retail relic.
Redbox is now planning to merge again, this time with the oddly named video on demand media company Chicken Soup for the Soul (CSSE)
, the owner of the Crackle streaming service. Chicken Soup for the Soul bought Crackle from Sony
But Redbox has also been a target of short sellers, investors (particularly hedge funds) who bet that a stock will go down. More than 30% of the company’s available shares were being held short as of the end of May, a very large amount.
And it’s the interest from the shorts, strangely enough, that may be helping to lift Redbox stock.
It seems that Redbox has become a favorite of the Reddit meme stock crowd, those investors that have helped boost GameStop (GME)
, AMC (AMC)
and, more recently, bankrupt
makeup giant Revlon (REV)
A quick look at the RDBX subreddit
shows that there the company is getting support from individual investors who are buying the stock in order to “squeeze” the shorts.
When a heavily shorted stock rises, that inflicts more pain on short sellers. That’s because short sellers borrow shares and then sell them with the hopes of buying them back at a lower price before returning them. They pocket the difference as a profit. But if the price goes up, the shorts can lose a lot of money.
Some fans on Reddit are predicting wildly 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 used to tout GameStop and AMC too.)
The problem with short squeezes is that they rarely last long. Redbox is now quickly losing momentum.
The stock fell more than 10% Thursday to around $9 and is now down about 40% from a recent high of just under $15 a share in mid-June. The Redbox squeeze may have been fun while it lasted, but make no mistake: the company is not the next Netflix or Disney.