Coinstar's 1Q earnings drop as Redbox growth slows

AP News
Posted: Apr 25, 2013 6:57 PM

SAN FRANCISCO (AP) — Coinstar's first-quarter earnings plunged 58 percent amid signs that its Redbox kiosks for DVD rentals are losing their appeal as more people switch to Netflix and other Internet video services.

The results announced Thursday still turned out better than analysts anticipated, despite Redbox's slowing revenue growth. That was enough to lift Coinstar Inc.'s stock by nearly 8 percent in aftermarket trading.

The company, which is based Bellevue, Wash., also disclosed plans to change its name to Outerwall. If shareholders and regulators approve the idea, Coinstar will become known as Outerwall this summer and its stock will begin trading under the ticker symbol "OUTR."

Management believes the new identity will underscore the company's ambitions to push "the walls of retail into a new dimension." As part of that effort, Coinstar is expanding beyond coin-counting machines and DVD rentals by beginning to dispense coffee and tickets to concerts and other events through its in-store kiosks.

Not long ago, there was speculation that Coinstar might change its name to Redbox to highlight its ownership of the more than 40,000 brightly colored DVD-rental kiosks set up in supermarkets, pharmacies and other stores.

Although Redbox brings in most of Coinstar's revenue, the DVD rental business is facing an increasingly uncertain future as more people embrace the convenience of being able to watch video on any Internet-connected device.

In the latest evidence of the phenomenon's building momentum, Netflix added another 2 million U.S. subscribers to its Internet video service during the first three months of the year to propel its total number of streaming customers beyond 29 million. At the same time, Netflix shed another 240,000 subscribers to its DVD-by-mail rental service.

Redbox's first-quarter revenue rose by less than 1 percent from last year to $508 million. The revenue probably would have declined if Redbox hadn't been operating more kiosks than it was a year ago.

Investors had already been braced for the slowdown because Coinstar had telegraphed it in its previous forecasts.

In a Thursday interview, Coinstar CEO Scott Di Valerio said he remains confident that Redbox's DVD rentals can grow by 5 percent to 10 percent annually during the next three years. To accomplish that, Redox has been moving kiosks from stores that haven't been producing adequate rentals and has been developing plans to reward its best customers to keep them coming back.

"We feel real good about where the business is going and how it's trending," said Di Valerio, who became Coinstar's CEO earlier this year after a three-year stint as chief financial officer.

Redbox also is angling for a piece of the Internet video market with a streaming service recently launched in a joint venture with Verizon Communications Inc. Di Valerio said it's still too early to assess the performance of the streaming service.

Coinstar earned $22.6 million, or 78 cents per share, during the first three months of the year. That compares with $53.7 million, or $1.65 per share, last year

If not for certain costs unrelated to its ongoing business, Coinstar said it would have earned 93 cents per share. That figure exceeded the average estimate of 87 cents per share among analyst surveyed by FactSet.

Revenue edged up 1 percent from last year to $575 million, missing analysts' target of $580.5 million.

Coinstar's stock gained $4.47, or 8.1 percent, to $59.50 after the numbers came out. The stock closed up $1.77, or 3.3 percent, to $55.03 in regular trading.