Coinstar: The DVD Isn't Dead Yet

Netflix (Nasdaq: NFLX  ) had better start taking Coinstar (Nasdaq: CSTR  ) seriously. Last night, the company behind the Redbox DVD kiosks easily beat Wall Street's first-quarter financial projections and issued better-than-expected guidance.

We'll get into the details of Coinstar's Q1 results momentarily. First, here's a closer look at the business from a Foolish perspective:

Metric

Coinstar

Operations

Specializes in retail storefront kiosks for coin counting, toy and snack vending, and DVD rentals. The company acquired the Redbox concept in 2009.

CAPS stars (out of 5)

**

Total ratings

525

Percent bulls

85.5%

Percent bears

14.5%

Bullish pitches

87 out of 107

Highest rated peers

Matthews International, Hillenbrand, Sotheby's

Data current as of April 29.

Coinstar's $424 million in first-quarter revenue easily topped the $410 million analysts were looking for. But it was the profit picture that really impressed. Adjusted earnings rose 53% to $0.46 a share, more than double the $0.22 analysts were expecting.

Looking ahead, management said it will begin renting video games in June and expects $430 million to $450 million in revenue and $0.76 to $0.86 a share in adjusted profit in Q2. Here, too, Wall Street was well off the mark. The implication? My DVD stupidity isn't widely shared.

And while Comcast (Nasdaq: CMCSA  ) , DIRECTV (Nasdaq: DTV  ) , and DISH Network (Nasdaq: DISH  ) are like Netflix in betting on on-demand, all signs point to continued demand for low-cost DVD rentals. Will the same dynamic work for video game rentals? GameStop (NYSE: GME  ) had better hope not.

Do you agree? Disagree? Tell us what you think about Coinstar's report, approach, and competitive differentiation using the comments box below. You can also rate Coinstar in Motley Fool CAPS.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up to date news on companies like Coinstar, or any of its peers or competitors. To get up-to-date news and analysis, add these companies to your watchlist today:

Netflix is a Motley Fool Stock Advisor selection. Sotheby's is a Motley Fool Hidden Gems pick. Hillenbrand is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended writing covered calls on GameStop. Alpha Newsletter Account LLC has purchased Netflix puts. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. 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 Motley Fool owns shares of GameStop and Hillenbrand and is also on Twitter as @TheMotleyFool. Its disclosure policy is moving on. Next!


Read/Post Comments (2) | Recommend This Article (1)

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.

  • Report this Comment On April 29, 2011, at 3:56 PM, IrishAlum1993 wrote:

    What the analysts and experts fail to appreciate is that Netflix and Coinstar appeal to different markets.

    Netflix customers are committing to regular monthly payments, high-speed computers and broadband internet payments.

    Coinstar customers? They have a TV, a DVD player and a buck to blow. Or, it appears, soon an Xbox or PS3 and two bucks to blow. And you don't need a computer to be a customer (although it makes life more convenient).

    What Coinstar has that Netflix doesn't right now is a competitive pool that is rapidly thinning out. Blockbusters are closing, and there's often only one alternative to grab a movie for tonight's viewing - a Redbox. Swing by a Redbox and marvel at the steady stream of traffic that they generate. That's what sold me on the stock...the people just keep coming...

    Netflix, on the other hand, has the likes of Amazon, Hulu, Apple and Google all trying to figure out how to best deliver streaming content and slice into Netflix's share.

    I'm not saying that Coinstar will ever hit earnings or prices that Netflix can flaunt...but they certainly have a niche that is running strong.

    I just hope that Coinstar management can adequately keep up with this lightning in a bottle proposition that they own.

  • Report this Comment On May 02, 2011, at 2:39 PM, WhiteHatBobby wrote:

    Coinstar will likely compete with Dish for the video kiosk market.

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