Redbox ($RDBX) debuted today after formerly trading as a SPAC. It did quite well and finished AH at $16 and is now one of the top trending tickers on Stocktwits. If we look at recent SPAC ($DWAC) or deSPAC squeezes ($BKKT), I’d say it still has a long way to go. And I would argue that the financials underlying the business plus the obvious similarities to GME/AMC justify a much higher price. Most people seem to be excited about the small float of 2M shares, and that’s a key point for sure. However, I think the most exciting thing is that it’s an absolute cash cow and has a brand awareness that rivals the most well-known companies in the world.
Redbox’s Financials
Here are Redbox’s financials:
| Year | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| Rev ($M) | 829 | 546 | 400 | 906 | 1112 |
| Ebitda ($M) | 196 | 114 | 40 | 193 | 237 |
| Free Cash Flow ($M) | 163 | 93 | 53 | 173 | 222 |
| New Movies in Theaters | 140 | 69 | 59 | 140 | 140 |
Can you name another company in the stock market that’s trading at forward P/E of less than 4 with a reasonable expectation to sustain or even exceed that in later years?
Redbox is highly profitable and their 2020/2023 rev declines are directly correlated with the dramatically lower amount of new movie releases due to COVID. If you expect the amount of new movies in theaters to return to normal in 2023 and beyond, you should be bullish on Redbox.
Just look at this graph to see how closely their legacy business (physical rentals) revenue tracks with the number of new movie releases per year.
At $16, Redbox is valued at a market cap of $715M and enterprise value of $965M. In 2019, they generated a revenue of $829M and EBITDA of $196M (83% of that being FCF). In 2020 and 2023, the revenue dropped to $546M and $400M, with EBITDA at $114M and $40M respectively. Most people will assume that 2020/2023 dropped because Redbox suddenly fell out of favor, but the actual explanation is that the number of new movies released in 2020/21 were dramatically less than in normal years due to COVID. The average person on Reddit probably has super-fast internet, but there are many rural places in the US that don’t have access to fast-internet and rely on Redbox for lag-free movie consumption. Additionally, Redbox’s rentals are priced at $2 whereas the equivalent digital rental would be $6, making it a strong option for value-shoppers.
In 2019 there were 140 new movies, 2020 there were 68 new movies, 2023 there were 59 new movies, and in 2023 it is expected to return to a normal level of 140 new movies.
Redbox’s Brand Exposure
Just about everyone knows Redbox and has positive feelings associated with the brand (cheap family movie nights). This is backed up by the fact that they have 40 million loyalty members, 43 million app downloads with a 4.8 rating, and 40,000 kiosks (more locations than Starbucks and McDonalds combined).
Their brand awareness makes me think that this will do on despac, as having a well-known brand is key to generating retail interest as we are well aware with companies like GME, AMC, and even recently WeWork and infamously, DWAC. Throwing out GME and AMC may sound like a pump, but the similarities are undeniable with Redbox having a movie rental disc business that is perceived to be dying. Redbox’s profitability and valuation are way more attractive than GME and AMC ever did though even at their lowest points.
Pivot to Digital
Redbox’s fast-growing digital business by itself would likely justify its entire valuation if it was any other SPAC. In 2019, their digital business had $20M rev, 2020 had $40M rev, and $2023 is expected to have $55M. In 2023, they are very bullish with their projections: $193M. Who knows if they’ll reach that, but it’s clearly the strategic focus of the company. Their 40 million loyalty members are usually late tech adopters, and so Redbox has a promising opportunity to capitalize on a large segment of people that have not been already bought into other streaming apps. Redbox adds unique value to these types of customers by making the experience simple for them–combining various streaming apps/services into one single Redbox digital platform. This way, users don’t have to download and sign into many different apps to see all of the available content.
Redbox’s digital strategy is multi-faceted: they are bundling various streaming services together (Showtime, Starz, AMC, Paramount+, etc.) through its own app and taking a cut, give its 40 million customers the opportunity to rent movies digitally through its Google Play-like store, and provide free ad-supported TV and movies on its streaming platform.
Redbox’s recent news releases also help illustrate their growing digital strategy:
- Redbox Expands Distribution Footprint of Its Streaming App to the PlayStation 5 Console
- Redbox Partners With Comcast’s FreeWheel to Bring Advertising Technology to Its Free Streaming Platform
- Redbox to Add Over 20 Free Ad Supported Television (FAST) Channels to Its Streaming Service Including Live Local News, Spanish Language, and Kids Programming
- Redbox Signs Promotional Agreement with Roku to Further Attract Multi-Platform Users
Disclosure: holding 50k warrants and 2k commons, not investment financial advice
Further references:
Bonus:
- Similar to Netflix, Redbox is also growing its movie-making business, which they can can license out to other streaming providers, exclusively rent out on its own kiosks, or add to their free ad-supported streaming service. They are aiming to create 36 movies per year.
- Their kiosk servicing team also is the exclusive service/maintenance provider for Amazon storage lockers
This article was written by u/Hardcoreposer7.
