What an ugly day for investors in Redbox (NASDAQ:RDBX). Shares of RDBX stock dipped more than 50% from yesterday’s close at today’s lows. At the time of writing, shares still remain approximately 46% lower. For this DVD rental company that has moved into film distribution, the past year has not been good for business.
Many had hoped that the desire for in-home entertainment might boost this company’s outlook. In combination with heavy spending on content and marketing for its theatrical releases, many investors appeared hopeful that RDBX stock could be a winner in this pandemic environment. However, it appears the company is experiencing some financial difficulty right now.
According to a Form 8-K filed today, this higher capital spending budget has not been offset by higher revenues over the past year. Accordingly, the company is looking to take some steps to right the ship and get the company in better financial shape.
Let’s dive into why investors are selling RDBX stock heavily today.
RDBX Stock Plunges on Form 8-K Filing
Today’s Form 8-K filing appears to seriously have taken the market by surprise. Indeed, any drop of 50% in a given day suggests some sort of material shock has investors running for the exits. As Redbox noted in its filing,
“On January 28, 2022, Redbox borrowed the remaining availability under its revolving credit facility. Redbox’s primary sources of liquidity are cash on hand, cash flow generated from operations, and amounts available under its revolving credit facility. Management is actively taking steps to decrease monthly costs, delay capital expenditures, and increase revenues. Redbox is also evaluating a variety of strategic alternatives.”
That’s a lot to unpack. Essentially, the company’s liquidity situation appears to be impaired. And right now, investors appear to be concerned for Redbox’s solvency. Given that the company is out of runway in terms of its revolving credit facility, it’s likely it will either need to issue equity or debt to cover near-term expenses. Furthermore, a sale is not being ruled out.
Indeed, considering what appears to be a negative cash flow situation, cost-cutting and other short-term measures are not being viewed positively today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
