Chicken Soup for the Soul Entertainment (CSSE) experienced a major setback as its stock plummeted by 45% on Tuesday. The streaming video and DVD rental company reported disappointing results for the June quarter, leading to a substantial decline in shareholder value.
Currently trading at 56 cents, Chicken Soup’s shares have fallen by 89% this year. The company, known for operating platforms like Crackle and Redbox, had anticipated a spike in DVD rentals driven by a robust lineup of major studio film releases. However, this prediction did not come to pass. Even their streaming video business failed to live up to expectations.
During the June quarter, Chicken Soup generated $79.9 million in revenue, a significant increase from $37.6 million in the previous year (prior to the acquisition of Redbox). Nevertheless, this figure fell more than $40 million short of the Street consensus forecast of $120.1 million. The company incurred a loss of $43.7 million for the quarter, with adjusted earnings before interest, taxes, depreciation, and amortization standing at just $700,000.
According to Benchmark analyst Daniel Kurnos, Chicken Soup’s performance fell far below expectations by all metrics. Additionally, Alliance Global Partners analyst Brian Kintslinger noted that retail revenue from the Redbox business only reached approximately $31 million, significantly lower than his estimate of $53 million.
As a result of these disappointing results, Chicken Soup for the Soul Entertainment will begin a thorough review of strategic options in an effort to regain lost shareholder value.
Company’s Ad-Supported Streaming Revenue Falls Short
Revenue from Chicken Soup’s ad-supported streaming business fell well short of expectations, coming in at approximately $32 million. The company cited a decision to defer the timing of certain deals as the reason for lower licensing revenue. This decision prioritized cash flow over immediate revenue gains.
The company’s financial situation is also a concern as they have a high level of debt following the Redbox deal. With only $6.9 million in cash on hand, Chicken Soup currently carries a hefty gross debt of $530.5 million.
Evaluating Options and Seeking Strategic Partners
To address these challenges, Chicken Soup is exploring various options to strengthen its position. CEO William Rouhana highlighted an increase in strategic activity within their space and has been receiving incoming requests from financial and strategic partners.
To evaluate these opportunities effectively, the company is forming a strategic review committee consisting of independent board members. The goal is to pursue transactions that generate value for shareholders and enhance the company’s stock price.
Analysts Adjust Their Outlook
As news of the company’s performance broke, analysts responded by adjusting their stock-price targets and ratings. Some analysts even downgraded their recommendations.
Needham’s Laura Martin maintained a Buy rating but revised her target to $1.25, down from $3.50. Benchmark’s Kurnos also maintained a Buy rating but reduced his target to $6, which is nearly 10 times the stock’s current price, down from $12. Craig-Hallum’s Jason Kreyer changed his rating from Buy to Hold and set a new target of $1, down from $8. Alliance’s Kintslinger downgraded the stock from Buy to Neutral and withdrew his target price.
In explaining the rationale behind his downgrade, Kintslinger stated, “We would re-evaluate our thesis when the company is able to report consistent cash flow that would enable it to service its debt.”