Redbox may be dying, but it’s not dead yet. And that creates opportunity.
That’s the key message from several stock market analysts who watched the company behind those famous DVD kiosks seemingly begin to crumble this week.
Outerwall, Redbox’s Bellevue, Wash.-based parent company, told investors on Monday that revenue for 2015 was going to be lower than expected, demand for DVDs is still drying up, and Redbox President Mark Horak has left the company.
Investors reacted predictably, sending the company’s stock down 29 percent in the days that followed. Outerwall stock is now trading around $41 per share, returning the company to 2011 levels.
But despite all the doom and gloom, industry analysts say now isn’t the time to give up on the business.
Piper Jaffray analyst Mike Olson said people tend to be pretty jumpy when it comes to Outerwall, seeing any bad quarter as a sign that the market for DVDs is being replaced by new streaming services faster than expected.
“It is — over time,” Olson told GeekWire on Friday. “But Redbox probably isn’t going away tomorrow because of it. … So I think there’s an opportunity to own the stock on what’s been an overreaction.”
Long term, Olson said it’s hard to make a case for Outerwall. But for right now, the Redbox business, which makes up about 80 percent of Outerwall revenue, seems to have plenty of life left.
Eric Wold, an analyst for B. Riley, went as far as to upgrade his recommendation on Outerwall to buy, noting he’s been waiting on the sidelines for a chance to get in on the company that still “dominates this market.”
Monday’s crash, Wold wrote in a research report, was exactly that opportunity he had been waiting for.
“We are not concerned that this one quarter represents any acceleration in secular declines within the physical rental industry that we have already been anticipating in the coming years,” he wrote.
Wedbush analyst Michael Pachter is seeing a similar silver lining. He points out in his most recent research report that while steaming services from competitors like Amazon and Apple may be able to offer more convenience than Redbox, they still have a hard time competing on price.
“We expect the company’s core value conscious consumers to remain loyal so long as there is a significant price differential between Redbox rentals and most on-demand offerings,” Pachter wrote.