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Redbox Q2 Profit Drops 17%

28 Jul, 2016 By: Erik Gruenwedel

When does a drop in profitability result in a good financial quarter? When the company is Redbox and the business is disc rentals.

Redbox reported $82.1 million in second-quarter (ended June 30) operating income on revenue of $389.1 million. That compared to operating income of $98.9 million on revenue of $439 million during the previous-year period.

The nation’s largest packaged-media rental service rented 123.6 million discs, compared with 146 million in the prior-year period.

Redbox operated 39,970 kiosks, compared with 41,340 units in the previous-year period. Segment operating margin dipped slightly to 21.1% from 22.5%, Blu-ray Disc rentals increased to 14.2% from 14.1%, while decreasing to 17.6% (from 18.1%) of rental revenue.

The kiosk vendor, which earlier this week agreed to be acquired for $1.6 billion by a private equities group, attributed the revenue decline to an ongoing secular decline in the physical market, lower Blu-ray mix and 1,400 fewer kiosks in operation year-over-year.

Video games provided a lift to revenue due to higher rental turns and increased nights out.

The average rental check was $3.13, an increase year-over-year and sequentially, reflecting a greater contribution from video games, particularly as a percentage of revenue, as well as continued optimization of promotional spending.

Single-night rentals represented 58.4% of total rentals in discount offers, which tend to drive higher single night rentals.

“We were pleased with the results … with key indicators pointing to stabilization in the business, including less impact from secular decline compared with Q1 and Q4 2015,” Redbox said in a prepared comment.

Redbox’s foray into video games saw six major title releases drive 37.8% higher game rental volume and 58% higher revenue. Games represented 1.5% of rentals and 4.3% of revenue.

Top titles in the quarter included Doom, Tom Clancy’s: The Division and Uncharted 4: A Thief’s End.

Video games average check was $8.80 due to higher nights out for new generation games and reduced discounting, due to increasing demand for new generation video games.

“As the industry continues to transition to new generation consoles, customers see Redbox as the try-before-you-buy destination for new generation games, an important factor in the improvement in video game rentals and revenue. Video games remain a key component of the Redbox strategy and the business will continue to focus on meeting growing demand while maintaining profitability.”

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