Chicken Soup For The Soul Gets 52% Price Target Cut Post Modestly Disappointing 4Q Results

Benchmark analyst Daniel Kurnos maintains Chicken Soup For The Soul Entertainment, Inc CSSE with a Buy and lowers the price target from $25 to $12.
The re-rating reflects the company's modestly disappointing 4Q results.
The revenue result was technically in line on a consolidated basis, although there was no official breakout between legacy CSSE and Redbox. Commentary from management, however, suggested a 29% Y/Y increase in Crackle from a combination of expanded distribution touchpoints (now 160 FAST channels), along with the development of their 3P ad sales solution as a provider of direct access and scale for outside parties who cannot reach that marketplace themselves.
Kurnos suspects legacy CSSE modestly outperformed, with Redbox the underperformer on lower kiosk count and a slower reacceleration of the rental business. It is, consequently, surprising that adjusted EBITDA was below the analyst's and the street forecast by some $3 million, but it is entirely possible to attribute that to transitional noise.
The more important news, however, was the $11 million raise that produced a more strained call on Friday morning and led to a 40% decline in the share price.
The guidance for 1Q is slightly ahead of expectations, implying a cash burn in the mid-single digit range and a much better investor forecast.
However, adjusted EBITDA is also now benefiting from increased stock comp instead of cash to help alleviate the cash burn pressure, technically implying a reduced guidance range given that the prior range was unchanged.
The increase in movie titles alone should be a tailwind for Redbox, even in an uncertain macro environment. The recent raise suggests an immediate need for capital (there was a cash put). However, Chicken Soup has a highly restricted $50 million ATM open to them while they push for a loan against receivables and still have $18 million on the balance sheet.
Kurnos suspect another $50 million or more in potential asset sales could further help de-lever the balance sheet.
The analyst believes the bar is extremely low, and shares would trade materially higher if not for the debt concerns.
Therefore the price target reflects that CEO Bill Rouhana has a better than 50/50 chance to pull this off.
Price Action: CSSE shares traded lower by 7.75% at $1.8450 on the last check Monday.

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