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Analyst Expects Solid Quarter for Coinstar

20 Apr, 2011 By: Chris Tribbey

Brick-and-mortar rental store closings and Blockbuster's struggles should help Redbox parent Coinstar post positive numbers when it reports first-quarter earnings April 28, an analyst said.

Eric Wold, director of research at Merriman Capital in San Francisco, wrote in an April 19 note to investors that Redbox should continue to gain market share this year, and management “has a handle” on DVD inventory issues that hurt fourth-quarter earnings. But he tempered hopes that Coinstar would put out big numbers when it announces expectations for the second quarter.

“First of all, while the [second-quarter] theatrical movie slate looks impressive, those movies will not hit DVD kiosks until [the third or fourth quarter], depending also on which are 28-day delays,” Wold wrote. “Secondly, we believe management is likely to take a more conservative stance in general with guidance given some of the recent missteps and consensus estimates historically gravitating to the high-end of guidance ranges.”

Merriman is forecasting first-quarter revenue of $408.5 million and earnings per share of 22 cents for Coinstar, just shy of analysts’ consensus of $409.4 million. 

Wold also addressed the possibility that a long-awaited digital partner for Redbox would be announced. His firm still believes subscription-based Hulu Plus would make the most sense.

“While Amazon has a solid brand and sizable customer base, we believe the current content selection is poor and state sales tax issues could complicate things,” Wold wrote. “With Netflix’s increased focus on streaming plans and inability to offer same-day DVDs, a partnership could make sense and create a content-wielding behemoth, but we see Netflix standing solo.”

Meanwhile, John Kraft, analyst with D.A. Davidson & Co., wrote in a research note that his firm expects Coinstar’s revenue to be on the lower end at $401.4 million and that investors shouldn’t expect a streaming partnership announcement.

However, “with Redbox kiosks strategically placed within close proximity of Blockbuster brick and mortar locations, these closures provide a catalyst for incremental DVD sales,” he wrote.


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