Analysts Mixed on Coinstar Results26 Apr, 2013 By: Chris Tribbey
A day after Redbox parent Coinstar announced its first quarter 2013 financial results, analysts had mixed opinions about the near- and far-term health of the company.
Wedbush Securities analyst Michael Pachter noted that Redbox is only expecting to install 2,000 to 3,000 more kiosks in 2013, and that revenue is lagging far behind the number of new kiosks installed.
“These two factors will accentuate concerns that the DVD rental market is quickly approaching saturation,” he wrote in a note to investors.
However, Redbox is adding loyalty programs to encourage its high-frequency customers to rent more, with those customers already accounting for 60% of total revenue, a smart move, Pachter wrote.
He also noted that the second quarter will see a stronger release slate, resulting in more rentals, suggesting “Coinstar could see its Redbox rentals grow by $125 million or more year-over-year; at a 20% contribution, this implies operating profit of $25 million on the year-over-year growth, and [earnings per share] contribution of over $0.50 … .”
Yet Redbox Instant by Verizon will need to prove a worthwhile endeavor for investors to keep Coinstar in a favorable light, Pachter said.
“Although the service may ultimately prove popular with Redbox renters and drive meaningful revenue for the company, we believe the revenue generated thus far pales in comparison to the charges incurred by Coinstar on a quarterly basis and the sizable capital contributions that have occurred in the past and will likely occur in the future,” he wrote.
B. Riley & Co. analyst Eric Wold noted that the weak first-quarter slate was “both well-anticipated and understood by investors and that Redbox remains well-positioned for a strong [second half] rebound in rental trends — which should finally put lingering concerns to rest.”
In a note to investors Wold suggested that more targeted marketing and promotional strategies, better disc inventory management, increased kiosk capacity and incremental kiosk traffic generated by Redbox Instant will prove profitable moves for the company.
“Unfortunately, we continue to believe that a major problem with the investor perception around the Coinstar story has been that revenues seem to matter more than profitability,” he wrote. “That, in our opinion, is just plain wrong. There is a very valid reason why none of the publicly-traded exhibitors provide any revenue guidance: It is virtually impossible to project with any level of certainty the demand for a certain movie. … We would much rather invest in a company that consistently exceeded profitability than revenues.”
Revenue for the second quarter was $574.7 million, compared with $568.2 million during the same quarter in 2012. Profit came in at $22.6 million, compared with $53.7 million during the comparable quarter.
Wold estimates the physical disc rental market is still strong at $5.3 billion for the year, and with Blockbuster Express kiosks out of the picture, it’s pretty much all Redbox’s game.