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Wedbush Bullish on Redbox Entertainment, Starts Coverage at Outperform

Redbox can capitalize on its DVD watching loyal customer base to switch to digital and easily clock $1 billion in revenue, said Wedbush.

Shares of Redbox Entertainment  (RDBX) - Get Redbox Entertainment Inc. Class A Report edged higher Tuesday after analysts at Wedbush initiated coverage of the entertainment services provider at outperform with a price target of $15 a share.

Redbox, known for its bright red DVD kiosks, is an entertainment company that gives consumers access to a large variety of content across digital and physical media.

Redbox is legacy name in the home video rental market, with a two-decade, built-in customer base, but a newer entrant into digital content and streaming businesses.

Shares of the Oakbrook Terrace, Ill., company rose 0.8% to $11.36 a share.

Wedbush analysts Alicia Reese, Michael Pachter and Junaid Zubair told investors that Redbox can capitalize on its 39 million loyalty members. 

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Most are late adopters of technology and have inadequate access or disposable income to spend on streaming services.

In a note Reese wrote, "Redbox’s 39 million loyalty members that it can leverage to market its digital products, as many of them are late technology adopters and Redbox makes the transition simple and inexpensive."

The company has struck several deals to boost its digital  content library for its streaming service, including an agreement announced in September with Oscilloscope Laboratories that includes movies such as "We Need to Talk about Kevin" and "The Messenger."

Wedbush also pointed out that Redbox can easily clock $1 billion in revenue if it can convert 10%–15% of its existing DVD kiosk customers to digital, which gives the stock upside potential.

Nearly three years ago, there weren’t many on-demand video alternatives to Netflix aside from your own stack of dusty DVDs or the local gas station’s Redbox kiosk. But now, the competition is much fierce

"The ongoing share shift from linear broadcast to Advertising-Based Video on Demand ... and from the fact that social media and conventional channels are saturated and losing share," Reese added.