Analyst Refutes Coinstar Earnings Estimate

25 Feb, 2011 By: Erik Gruenwedel

Redbox’s parent Coinstar Inc. took a hit Feb. 25 after an analyst reportedly said the vending operator’s fiscal 2011 earnings estimates were too high and urged shareholders to sell.

Analyst Paul Coster with JP Morgan said ongoing inventory issues at Redbox kiosks coupled with 28-day embargoes on new releases from three major studios would contribute to Coinstar shares underperforming throughout the next six to 12 months.

“We believe [Coinstar] is facing the near-term headwind of a weak slate of movies for rental compounded by the relative staleness rendered by the 28-day window,” Coster wrote in a note published by Forbes.com.

Coster changed his rating on Coinstar shares to “underperform” from “neutral.”

While Redbox accounted for 35% of all physical rentals in January, according to The NPD Group, speculation is growing that the kiosk market will become saturated in the next 18 months. With Amazon entering the subscription VOD streaming market and Google’s YouTube rumored to launch a service shortly as well, the race to offer the cheapest (and lowest margin) movie rental is heating up.

Indeed, NCR Corp., which owns and operates No. 2 disc vendor Blockbuster Express, recently said it would re-evaluate its commitment in the fourth quarter if the kiosks were not near profitability.

At the March 3 Morgan Stanley Technology, Media & Telecom Conference, Coinstar CEO Paul Davis and Galen Smith, treasurer and corporate VP of finance, revealed little new about Redbox’s plans for a subscription digital offering that would pair with physical DVD rentals, with Davis offering, “We’re pleased with how negotiations are going.”

Shares of Coinstar were above $43.50 in afternoon trading March 3.

Coinstar CFO Scott Di Valerio will address a Wedbush Securities investor event March 9 in New York.