Chicken Soup for Your Portfolio

Last week was shortened by a day with the markets closed on Good Friday and maybe that’s why insider buying slowed. There wasn’t any standout trade during the four-day week. But we did find a lower priced stock…

Chicken Soup for the Soul Entertainment, Inc. (CSSE) Chairman and Chief Executive Officer (CEO) William Rouhana Jr. acquired a little more than 1.8 million shares at $2.30 for an investment of nearly $4.3 million. 

Chicken Soup for the Soul Entertainment is one of the largest advertising-supported video-on-demand (AVOD) companies in the US, with three flagship AVOD streaming services: Redbox, Crackle, and Chicken Soup for the Soul. In addition, the company operates Redbox Free Live TV, a free ad-supported streaming television service (FAST), with over 160 channels as well as a transaction video on demand (TVOD) service, and a network of approximately 34,000 kiosks across the US for DVD rentals.

It was the CEOs first trade, buy or sell, in the entertainment company’s stock. Reading through CSSE’s most recent quarterly earnings transcript, it doesn’t take much dot connecting to make an educated guess why Rouhana Jr. went big in his maiden trade. (1)

Some of the CEO’s highlighted comments: (2)

“Let me talk about — a little bit about the past year. 2022 was a year of transformation, not only for our industry but for our company as well. Total annual revenue for the company was $253 million, up 129% over last year, and adjusted EBITDA was $33.5 million, up 53% in the same period. We hit our revenue run rate of $500 million in revenue and $100 million to $150 million of adjusted EBITDA as we planned.”

Talking about Redbox’s prospects:

“The return of theatrical titles is firmly underway. This return, however, began in earnest months later than we had anticipated when we acquired Redbox. When looking at 2022, there was only a small trickle of big budget wide release hits that broke the year-long theatrical drought, films like Top Gun Maverick, Black Adam and Black Panther: Wakanda Forever. But the frequency of the releases was sporadic and very slow. 

We were still seeing extended weeks with no major releases. To give you some context, that’s only 3 major event films from August through February. And as you all know, the kiosk depend equally on the frequency of major releases as they do on the volume of those releases. The frequency of major releases is finally here. After waiting for years, big movies are back in the theaters every week, beginning in February of this year with the theatrical release of Ant-Man and the Wasp: Quantumania.

We expect at least one new major wide release every weekend for the rest of the year. It’s like the floodgates have opened and the studios are rushing to release as many films as possible on available weekends. In fact, the 2023 theatrical slate is one of the most impressive in terms of content and volume in years.” 

Despite the Chairman seeing the floodgates opening, Wall Street analysts may not have caught up yet. So far, only one analyst has changed his/her outlook on the company since the company released its fourth-quarter results. (3) Profits are expected to be underwater in the foreseeable future. Revenue is expected to rise from this year’s consensus of $498.23 million to $559.83 million next year, a 12.4% increase. 

Compared to its industry, CSSE trades at a discount based on price to sales (P/S). The typical company in Chicken Soup’s space trades at $1.90 per dollar in revenue versus 14 cents on the dollar for CSSE. Rouhana Jr’s company is also discounted relative to its book value of $5.99 per share as it trades at $1.99 as of the close on April 6, 2023. (4)

OVERALL: Chicken Soup for the Soul Entertainment, Inc. (CSSE) appears to offer some value for new shareholders. At the same time, the stock could have some upside as, in our opinion, Wall Street may not have caught up with current business trends that should benefit CSSE in the immediate future.

As a low-price stock, CSSE is only appropriate for investors with the highest risk tolerance and a time horizon of at least 12-18 months. 


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