When Will Coinstar Rename Itself Redbox?

If anecdotal evidence is anything to go by, the optical disc's days may be numbered:

  • Netflix (Nasdaq: NFLX  ) is referring to itself as "the world's leading Internet subscription service for enjoying movies and TV shows" as it emphasizes its streaming catalog over its original DVD rentals.
  • Apple (Nasdaq: AAPL  ) has opted out of optical discs for its MacBook Air line since its inception, but the latest update goes one step further. Apple is replacing its operating-system backup DVD with the same data on a USB stick.
  • Studios in general have been bellyaching over sluggish DVD sales.

Still, try telling that to Coinstar (Nasdaq: CSTR  ) . The company behind the Redbox kiosks, which rent DVDs for a buck a night, delivered stellar growth last night.

Third-quarter revenue surged 42% to $380.2 million, as earnings nearly doubled to $0.66 a share. Analysts were only banking on a profit of $0.50 a share.

Redbox revenue climbed 54% to $305.5 million, or 80% of total revenue mix. One has to wonder why the company hasn't changed its name to Redbox already. Its namesake coin-collecting business grew a mere 7% to $74.7 million during the quarter.

If you didn't think that a company could expand on its margins and generate a 54% top-line boost by renting out discounted DVDs, think again. Redbox is growing nearly twice as fast as Netflix, which had a 31% top-line gain over the past year.

Why is Coinstar's stock as red-hot as its kiosks? The company raised its guidance for 2010, and initiated a 2011 view far ahead of where the pros are perched.

Coinstar targets earnings per share between $3 and $3.50 next year, on $1.8 billion to $1.95 billion in revenue. Wall Street had settled for earnings of $2.87 a share on $1.8 billion in revenue. Based on last night's close, Coinstar stock was fetching just 13 to 15 times next year's projected profitability. That's not too shabby, given Coinstar's growth, as long as DVDs don't go completely extinct over the next few years.

There will always be a cloud of obsolescence hanging over Redbox, especially as more Wi-Fi-backed homes stream movies over a growing range of home-theater appliances. That said, Redbox will not go without a fight. It promised to reveal a digital strategy this month. Last night's call didn't include the expected fireworks, though; Coinstar only pointed out that it will launch a Redbox-branded digital service through partners -- earlier rumored to be Wal-Mart (NYSE: WMT  ) or Amazon.com (Nasdaq: AMZN  ) -- next year.

Delays and dependence on digital partners won't help Redbox make up ground on Netflix. But as long as consumers continue to gravitate to marked-down discounted rentals -- and now video games in 4,500 kiosks, and $1.50 Blu-ray rentals -- Coinstar will continue to hold up nicely.

Would you rather own Coinstar or Netflix? Share your thoughts in the comment box below.

Wal-Mart Stores is a Motley Fool Inside Value recommendation. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Apple and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. That's less than a Redbox rental! 

Longtime Fool contributor Rick Munarriz has been a subscriber and shareholder in Netflix since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1350409, ~/Articles/ArticleHandler.aspx, 10/21/2014 3:55:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement