Chicken Soup for the Soul Entertainment’s acquisition of Redbox for $375 million has proven to be a challenging endeavor for the company. A year after the deal was closed, the company’s second-quarter financial results reveal ongoing difficulties in fully integrating the acquired company. Despite an increase in total revenue due to the addition of Redbox and its movie-rental kiosks, Chicken Soup fell short of analysts’ expectations. This article analyzes the company’s struggles, its efforts to cut costs, and the impact of industry headwinds.
Chicken Soup for the Soul Entertainment reported total revenue of $79.9 million for the quarter ending June 30, more than double the previous year’s figure. However, this fell significantly short of Wall Street analysts’ consensus expectation of $120.1 million. While the company’s net losses were slightly better than expected, widening to $1.50 per share compared to the previous year’s $1.39 per share, the results overall indicate a challenging period for Chicken Soup.
To combat the financial challenges, Chicken Soup for the Soul Entertainment has intensified its efforts to reduce costs and generate more near-term free cash flow. The company plans to achieve approximately $15 million in incremental cash flow savings through streamlining its digital and distribution businesses and creating a centralized organization. Additionally, the company turned away licensing deals worth $30 million during the quarter, prioritizing immediate cash flow over long-term profits.
Following the release of the disappointing quarterly results, Chicken Soup for the Soul Entertainment’s stock experienced a significant decline in after-hours trading. The already-battered shares fell by 18% to 88 cents, displaying investor dissatisfaction. The stock began trading in 2023 at $5.26, highlighting the steep decline it has experienced in recent times.
To address the financial challenges and improve the company’s position, a committee consisting of independent members of the board of directors has been formed. This committee will evaluate various specific options to create value for shareholders. Chicken Soup for the Soul Entertainment has received interest from both financial and strategic partners, prompting the need to explore potential transactions. The current stock price does not reflect the company’s perceived value, and the committee aims to rectify this discrepancy.
Despite the overall turbulence experienced by Chicken Soup, the quarter also saw the release of Super Mario Bros. on Redbox, which became the top home entertainment title of the year. This success demonstrates the potential of the acquired company and its ability to deliver popular content. Additionally, the ongoing strikes in Hollywood by the Writers Guild of America (WGA) and the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) have increased demand for library titles. Chicken Soup for the Soul Entertainment’s diverse business units have an opportunity to shine as competitors face programming shortages.
As the strikes continue, the company’s library of content becomes increasingly valuable. The longer the strikes persist, the more opportunities arise for Chicken Soup for the Soul Entertainment to leverage its extensive library. The company’s distribution unit, 1091, which was acquired for $15.6 million, is instrumental in releasing between 25 and 35 titles each month. This unit contributes to the company’s cash flow and presents a growth opportunity that Chicken Soup is actively pursuing.
While Chicken Soup for the Soul Entertainment navigates its challenges, a months-long extension of the strikes poses a threat to the studio theatrical pipeline. This scenario not only affects the company but also other businesses reliant on Hollywood movie output, including Redbox. The industry’s vulnerability reinforces the need for Chicken Soup to overcome its integration struggles swiftly and efficiently.
Chicken Soup for the Soul Entertainment continues to face obstacles in fully integrating Redbox into its operations. The second-quarter financial results fell short of analysts’ expectations, impacting the company’s stock price. However, efforts to cut costs and generate cash flow are underway, and an evaluation committee has been established to explore options to create shareholder value. Despite the challenges, the company has experienced success with notable releases and an opportunity to capitalize on the strikes in Hollywood. The ongoing strikes also reinforce the importance of a swift resolution to ensure the stability of the studio theatrical pipeline.