Why Outerwall Shares Fell Apart

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Outerwall (NASDAQ: OUTR  ) were getting chipped away today, falling 14% after a shaky earnings report.

So what: Formerly known as Coinstar, the operator of automated retail machines such as Redbox said revenue improved 4% in the quarter, to $554.2 million, but that was short of estimates at $564.9 million. Adjusted earnings per share, meanwhile, crushed estimates, coming in at $1.91, versus expectations of $0.99. Much of that jump, however, had to do with adjustments for amortization and the sale of some kiosks. Analysts seemed to be put off by lower-than-expected third-quarter EPS guidance at $1.36-$1.51, as the consensus stands at $1.63; however, much of that difference seems to be from the reversal of the amortization adjustment.

Now what: The midpoint of revenue guidance is actually above analysts' expectations, so I wouldn't be too concerned about guidance. The company also said that unit rentals of DVD's declined by 11% in the quarter, but it expects that trend to reverse in the second half of the year. With the rise of streaming, DVDs may be a declining business, but Outerwall's completed acquisition last quarter of EcoATM, an operator of kiosks that sell mobile phones, tables, and MP3 players, proves that it's focused on diversifying its portfolio. Despite the DVD decline, I wouldn't write off Outerwall just yet.

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