Coinstar: Red hot with Redbox

Posted Aug 5th 2009 3:50PM by Tom Taulli
Filed under: Earnings Reports, Wal-Mart (WMT), McDonald's (MCD), Netflix, Inc. (NFLX)

Not that long ago, Coinstar (NASDAQ: CSTR) was a sleepy business. Its retail kiosks helped with the mundane tasks like coin counting, money transfers, and so on.

However, the company has redefined its vision -- considering itself a big player in the automated retail category. And, it looks like the key to the strategy is its DVD rental kiosk platform, Redbox.

As seen with the latest quarterly results, Redbox is propelling growth. Revenues spiked 43% to $314 million, with profits going from $2.7 million, or $0.09 per share, to $7 million, or $0.23 per share. For the year, Coinstar expects revenues of $1.225 billion to $1.3 billion. Profits are forecasted at $0.80 to $0.86 per share.

Redbox, which has more than 17,000 locations, is actually pinching rival Netflix (NASDAQ: NFLX). In fact, the firm expects to reach 22,000 locations by the end of the year.

With a $1 a day rental fee, Redbox is irresistible. At the same time, it's easy to use, in terms of returning movies (to the kiosks) and reserving titles online. You can find Redbox kiosks in places like Wal-Mart (NYSE: WMT) and McDonald's (NYSE: MCD).

So far this year, Redbox's share of the DVD rental market has gone from 9% to 14%. In fact, to bolster things, the company plans to add more selections, Blu-ray titles and even video games. At the same time, Coinstar is exploring the possibility of selling off lower-growth properties -- giving the company even more resources to focus on Redbox.

And Wall Street likes things. In today's trading, Coinstar's shares are up 8% to $37.28.

Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook. He is also the co-founder of Phitch, which provides inventory management software for small and medium size businesses.

Tags: Coinstar, CSTR, inthenews, mcd, nflx, Redbox, wmt