Coinstar Makes It a Blockbuster Night

Coinstar (Nasdaq: CSTR  ) is doing it all.

The company behind its namesake coin-counting machines and Redbox disc-renting kiosks had its cake and ate it, too, last night.

First came the blowout earnings report. Revenue soared $520.5 million, fueled almost entirely by a nearly 40% surge in its Redbox business. With Redbox now accounting for 86% of Coinstar's revenue, isn't it just a matter of time before the company takes on a new corporate moniker?

Earnings soared 47% to $1.00 a share. Analysts were clueless, targeting net income to actually decline to $0.64 a share on a mere $498.1 million in revenue.

Coinstar's second "aha moment" came when it revealed it was snapping up NCR's (NYSE: NCR  ) DVD kiosk business. The press release doesn't call out Blockbuster by name, but NCR had licensed the "Blockbuster Express" brand from DISH Network's (Nasdaq: DISH  ) Blockbuster for its Redbox-like automated machines that spit out disc rentals. Coinstar is paying $100 million for the kiosks, DVD inventory, and certain retailer contracts. In other words, Coinstar just wiped out its only material competitor on the DVD kiosk front.

Boom. Well-played, Coinstar.

These are certainly interesting times for Coinstar. Earlier yesterday it announced plans to team up with Verizon (NYSE: VZ  ) to introduce a streaming video service during the latter half of this year. Given Coinstar's DVD and Blu-ray kiosks and Verizon's streaming acumen, this would be the first challenge to Netflix's (Nasdaq: NFLX  ) dual model outside of Blockbuster's forever fluctuating initiatives.

Coinstar's outlook is also encouraging. The company sees a 2012 profit of $3.80 a share to $4.30 a share on $2.075 billion to $2.25 billion in revenue. Sure, this is decelerating growth. The midpoints imply earnings and revenue climbing just 12% and 17% higher, respectively. However, double-digit growth is nothing to sneeze at while cynics -- like me, I'll sheepishly admit -- are predicting an end to disc-based rentals.

Coinstar isn't going down without a fight, and judging by all of last night's news it doesn't plan on going down at all.

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Motley Fool newsletter services have recommended buying shares of Coinstar and Netflix. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On February 07, 2012, at 11:28 AM, TraderatWork wrote:

    I do not understand why people hate DVD rental business. Blockbuster, Hollywood been serving the people for so long, even though they went bankrupt the reason is because the bricks and mortal rental and fix cost is too high (for the business), not because people do not want to rent video any more. Kiosk made perfect sense, you can stuff 2 or more machines at grocery or convenient stores with 1/10 of staff. Netflix is stupid to let go of this piece of business, Coinstar $2 billions and increasing sales is the proof. Netflix should integrate online streaming, mail and kiosks so their customer can have no reason to leave them.

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