Stock prices for kiosk company Outerwall are down more than 20% in post-market trading after it lowered its financial projections for the year noting in a release that promotion discounts in July and August “drove consumers toward more single night [DVD] rentals.” As a result, the net revenue per rental in Q3 likely will fall as much as 9 cents vs last year. The company, formerly known as Coinstar, also says that it may see 6.5M fewer rentals than it expected in Q4 “as the number of titles has shifted to either later in the fourth quarter or into 2014.” The number of shifts “is greater than normal.” The Redbox owner had high hopes for Q3: Last year the company struggled to compete with the Summer Olympics, and the number of customers is up 5% in the first half of 2013 vs the period last year. Indeed, CEO J. Scott Di Valerio says that “both rentals and revenue for Redbox increased significantly in July and August” — even though they ultimately “were not to our expectations.” He vows to cut the number of consumer promotions, reduce content and operating costs, and repurchase an additional $100M of Outerwall shares in Q4. The company dropped the top of its Q3 revenue projection, made in July, by 6.5% to $589M with earnings per share down 37.8% to a maximum of 94 cents. For the full year, revenues are now projected as high as $2.34B, -5.5% from the previous estimate, with core diluted EPS as high as $5.12, -18.2%.
The stock is up more than 5% in after-market trading following the earnings report — plus an announcement that the company behind the Redbox kiosks plans to change its name to Outerwall. Whatever it’s called, it reported Q1 net income of $22.6M, -57.9% vs the period last year, on revenue of $574.7M, +1.1%. The revenue number is short of the $579.4 that analysts expected. But core earnings per share, factoring out one-time gains and losses, came to 93 cents — well ahead of the 86 cents the Street anticipated. The Redbox disc rental kiosk unit generated $92.7M in operating income (-15.3%) on revenue of $507.9M (+1%). The slight top-line growth was mostly due to the additional kiosks in the field. Profits took a hit as a result of “an increase in product costs related to higher DVD content purchases” — including increased buys from Warner Bros resulting from the deal they struck late last year. Coinstar says that “the physical market is stabilizing following further Blockbuster store closings and Netflix’s continued efforts to shift their disc customers to streaming.” Meanwhile, Blu-ray disc rentals “exceeded our expectations” and represented 14.2% of Redbox revenue, and 12% of total rentals. The company expects the HD discs to account for as much as 16% of Redbox revenue in Q2. CEO J. Scott Di Valerio says that the “continued growth in Redbox market share shows our ability to win with consumers.”
The stock is down 3.9% in initial after-hours trading. The maker of the Redbox DVD rental kiosks says that CEO Paul Davis — who has held the top job since 2009 — will retire in March, and be replaced by CFO J. Scott Di Valerio. The change comes as the company, in a joint venture with Verizon, begins to roll out a streaming service called Redbox Instant that aims to compete with Netflix and Amazon. The announcement about Davis’ departure also notes that Coinstar expects to hit its full-year and Q4 forecasts for revenue and cash flow growth with earnings from continuing operations at the high end of a range it provided. But that’s “primarily due to lower company G&A expenses and certain tax benefits at Redbox” — not necessarily strong results from the core business. Here’s the release:
UPDATE, 3:23 PM: If you were waiting for detailed information about the Redbox Instant by Verizon streaming plans, you’ll have to keep waiting. Coinstar told analysts in a conference call that the online service is in an internal beta test and the test will be opened to the public soon. “We’ve been really pleased with the progress,” CEO Paul Davis says. But he didn’t offer much more, including what studios might participate in addition to Warner Bros. “We’ll talk more about what the other offerings will be when we go public.” Coinstar said it kicked $10.5M into the joint venture in Q3. If it has to add more in Q4 then it will be “relatively small.”
PREVIOUS, 1:16 PM: Even the announcement of a new distribution agreement with Warner Bros — which will provide Redbox kiosks with home video titles 28 days after they hit retail stores — wasn’t enough to help the Coinstar in investors’ eyes. The stock price started to dive in late trading, and continued to fall about 8% after hours when the company behind the Redbox kiosks reported disappointing Q3 results. Net income of $36.8M was down 9.5% vs the period last year, on revenues of $537.6M, up 15.5%. Analysts thought that revenues would come in closer to $557M. And earnings per share from continuing operations, at $1.14 was a penny shy of forecasts.
The stock price is up more than 8% at midday after the New York Post said that the owner of the Redbox DVD rental kiosks is talking about selling itself to “an undisclosed private-equity firm.” Coinstar has a market …
Coinstar CEO Paul Davis — whose company owns the Redbox DVD rental kiosks — appeared on CNBC today to discuss a venture that’s almost as important to folks in the media business: coffee. Coinstar shares were up 6% after Coinstar said that by year end it will roll out 500 …
Coinstar shares are up more than 13% in after-hours trading on a big news day for the relatively small parent of Redbox. The twist with the announcement involving Blockbuster Express is that the kiosks you see in supermarkets and drug stores aren’t owned by Dish Network, which last year bought the famous video rental chain. The kiosks are made by NCR, which had licensed the Blockbuster name. But now its chief competitor, Coinstar, says it has agreed to buy the NCR Entertainment business line for up to $100M. Coinstar also says that it will “procure from NCR hardware, software and services” that will provide NCR with $25M over five years. NCR had been looking to get out of the kiosk business, which had also become a thorn in Dish Network’s side. The deal needs to pass muster with anti-trust regulators. If it does, then the companies expect it to close in 3Q. If it doesn’t, then Redbox will have to pay NCR a $10M break-up fee. NCR sent Blockbuster Express customers an email today assuring them that until the sale closes “we will continue to run the business as we have been, focused on bringing you the latest New Release movies with most titles only $2 for the first night.”
The video rental company’s shares have spiked 6.8% in midday trading — an eye-popping standout on a day when the market’s down about 2%. The reason: website DealReporter says that Verizon is considering buying Netflix to get into the video streaming business. There’s just enough going on to make this plausible: Last week, Verizon CEO Lowell McAdam said that his company wants to offer video streaming, and had even looked at Hulu when it was on the block. He declined to comment on reports Verizon is preparing to team up with Coinstar’s Redbox. TechCrunch said that the companies were so far along in their plans, code-named Project Zoetrope, that they had set May 28 as the date when they’d commercially roll out their video download and rental service. Coinstar has said that it would unveil its video streaming plans by year’s end.
There was an underlying message in Redbox parent Coinstar’s presentation to analysts yesterday following its 3Q earnings report: Warner Bros, Universal, and Fox had better not double the delay period for providing DVDs to Redbox. Despite his easy-going speaking style, CEO Paul Davis firmly indicated that such a strategy — increasing the window for those studios to as much as 60 days from the current 28 – would lead to corporate warfare and probably backfire. It would help Paramount, Sony, and Lionsgate, which recently extended their agreements to supply DVDs to Redbox the same day that they’re available elsewhere. (Disney also provides discs on opening day to Redbox.) What’s more, Redbox execs say that they can buy DVDs from other sources instead of securing them directly from the studios. “The great thing about the United States is that the first-sale doctrine gives you opportunity for workarounds, and we evaluate that … to protect the windows we enjoy today,” Davis says.
Coinstar executives say that they want a win-win solution — that studios have something to gain by helping Redbox. The company illustrated that with its new agreement to give Paramount 100,000 Coinstar shares for extending its day-and-date deal, with an option for 100,000 more if the studio takes it two years beyond 2014. They also subtly reminded studios that they’ll need Redbox if they decide to milk DVDs as long as they can while waiting for consumers to warm to cable and Internet VOD services. Coinstar noted that it recently became the leading renter of DVDs in the wake of Netflix’s blundering decision to raise subscription prices by 60% for people who want to to rent discs as well as digital streams.
UPDATE, 3 PM: CEO Paul Davis says the Redbox price increase to $1.20 a night followed “several months of testing” and was designed to keep prices “as low as possible for consumers” as operating costs rise. The company says that the “vast majority” of transactions at its kiosks involve debit cards affected by the Durbin Amendment, as opposed to credit cards. Customers will still be able to rent for $1 a night through November if they reserve a DVD online and then pick it up at a kiosk. He added that the company plans to unveil a digital streaming plan by year’s end, calling it “a top priority for the company.” Davis says Redbox has seen business increase from consumers who felt “disenfranchised” by Netflix’s 60% price hike for its combo DVD rental and streaming service, but he can’t say how many people defected.
On the studio side, Davis says Paramount just extended its agreement to provide DVDs to Redbox the same day they’re available in stores through 2014. The studio will receive 100,000 shares of restricted stock in Coinstar, and can collect an additional 100,000 shares if it exercises its two options that each would extend the agreement by a year. Redbox’s day-and-date agreement with Sony runs through September 2012, and one with Lionsgate goes through August 2014. It has similar deals with Summit and Anchor Bay.