Coinstar Has a Problemhttp://www.fool.com/investing/general/2013/02/08/coinstar-has-a-problem.aspx Rick Aristotle Munarriz
February 8, 2013
Coinstar (NASDAQ: CSTR) may be the last remaining player to be growing in the fading art of DVD rentals, but that may not last too much longer.
Shares of the Redbox parent tumbled on Thursday night after posting mixed quarterly results.
Revenue climbed 8% to $564.1 million, well short of the $580.2 million that Wall Street was targeting. The bottom line held up better relative to expectations. Yes, net income, operating profits, and free cash flow all fell during the period, but the $0.75 a share that Coinstar posted in continuing earnings -- or $0.93 a share once you back out the operating loss from its recently acquired NCR kiosks -- landed ahead of the $0.73 a share that analysts were forecasting.
Don't read too much into the big hit from the 6,200 Blockbuster Express kiosks that Coinstar acquired last year. NCR makes ATMs, folks. It wouldn't have sold its flick-spewing automatons if money was flowing in the right direction in that business. The real problem here is Coinstar's dwindling revenue growth.
Redbox fades to black
There are two reasons for the slip. One problem is that video game rentals made up a smaller part of the revenue mix this time around. That isn't a surprise. Anyone who has seen video game retailer GameStop slash its same-store sales guidance four times over the past year could've seen this coming. The video game industry has been in a funk for years. This is only going to get worse, especially if reports that the new Xbox won't accept rentals prove accurate.
The other problem is that folks are simply returning their rentals sooner. This is scarier than you probably think. If Redbox finds that more of its customers are returning their discs the next day -- instead of paying $1.20 a night for every additional night -- it probably means that the kiosks are losing their more affluent customers. Redbox's value proposition has always brought out the penny-pinchers who don't want to spring $5 for a pay-per-view rental from the comfort of their living room Barcalounger, but now it may be down the stingiest of movie buffs.
Digital tries to save the day
We'll have to see how that all plays out.
Coinstar seems to be confident enough. The midpoint of its revenue guidance for all of 2013 -- $2.465 billion -- is less than Wall Street was modeling, but it's 12% over 2012. Put