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With Redbox plans still a work in progress, shareholders punish Coinstar

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Shareholders were not impressed by the sound of jingling change coming from kiosk operator Coinstar’s pockets for Q4 2012, pushing the company’s stock down nearly 10 percent in after-hours trading.

The company’s “change” was a little light for the quarter, pulling in a profit of $22.9 million ($0.75 per share) on revenue of $564.1 million. That’s a sharp drop compared to the same period last year, which saw a profit of $31.5 million ($1.04 per share) on revenue of $466 million.

During today’s Q4 earnings call, Coinstar CEO Paul Davis attributed the dismal numbers to a handful of big factors, most of which involved higher costs associated with the company’s Redbox movie and game rental kiosks. Davis said Coinstar spent more money on bringing in new content that appeals to its regular customers. There were also higher costs related to swapping out Blockbuster Entertainment kiosks with Redbox kiosks, expansion into Canada, Redbox’s new event ticket service, and its joint venture with Verizon on streaming video subscription service Redbox Instant.

Davis also said the company’s coin sorting Coinstar kiosks, which saw year-over-year revenue stay flat at $74.5 million, should see growth among customers as more kiosks gain integration with PayPal accounts and gift cards for various retail stores.

One interesting piece of information mentioned during the earnings call was an initiative to increase the capacity of each rental kiosk to hold an additional 80 disks (for games, DVDs, and Blu-ray). This means Redbox will be able to offer older rentals for a longer period of time, thus increasing the amount of revenue it can get out of each disk. The new higher capacity Redbox kiosks will roll out nation-wide by the end of 2013, David said.

And while Coinstar is growing Redbox in many ways (foreign markets, ticket sales, streaming video), the company doesn’t anticipate an aggressive push for more kiosks domestically.

“I think its safe to say at this point we are no longer focused on [kiosk] expansion,” David said. “We’ll be concentrating on adding the 500 to 1,000 new kiosks [in 2013] and relocating under performing kiosks to better areas.”

Analysts also weren’t too keen on Coinstar’s guidance of a slower than expected Q1 2012, with estimates of $0.77 – $0.92 per share on revenue of $568 million – $593 million. Davis warned that the first quarter of the year will see 12 notable movie new releases compared to the 24 that debuted in Q1 last year.

Still, David did assure shareholders and analysts that all of Coinstar’s initiatives will slowly push the company’s profits back up to where they need to be by the end of the year.