Coinstar Crushes It

By Sham Gad | February 08, 2012 AAA

Coinstar (Nasdaq:CSTR) ended 2011 on a strong note that pleased analysts and the market. Revenue in the fourth quarter was over $520 million, up 33.2% over the 2010 fourth quarter, while EPS of $1 during the quarter was 47.1% above the year ago figure. The quarter capped off an impressive year for Coinstar with full year revenues of more than $1.8 billion and EPS of $3.61, an increase of 28.5 and 77.8%, respectively. Analysts were expecting EPS of around 64 cents on revenues of $500 million. (For related reading, see How To Decode A Company's Earnings Reports.)

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RedBox Equals Lots of Green
While Coinstar's namesake product is its green coin counting machines found inside grocery stores, most of the company's money is now made from its RedBox DVD kiosks found in the same locations. Redbox revenue grew by nearly 40% during the quarter, while coin revenue was up 4.8%.

In October the company increased its DVD rental prices, which has gone over well with consumers. This is a much different experience than that of Netflix (Nasdaq:NFLX), which surprised its subscribers by a price hike that initially led to a wave of lost subscribers. Since that time, Netflix has gained back new subscribers and looks ready to continue its growth.

Despite the price increase, Coinstar now offers the most efficient and low-cost way to rent individual DVDs in a very consumer friendly manner. For a little over a dollar a day, consumers can choose from over hundreds of the latest DVD titles without having to make the extra trip to a movie store. Coinstar has over 28,000 of its RedBox kiosks located at high traffic locations like Wal-Mart (NYSE:WMT), Kroger (NYSE:KR) and CVS (NYSE:CVS), not to mention banks and restaurants. Thanks to both Netflix and Coinstar, the traditional movie store format is all but extinct.

Investing in Growth
The company also surprised Wall Street by announcing the acquisition of NCR's DVD business. In addition, the company also announced a joint venture with Verizon (NYSE:VZ) whereby Coinstar aims to work with Verizon to provide consumers with entertainment in physical and streaming format. Because of these initiatives and continued strength in the Redbox business, Coinstar expects to generate roughly $2 billion to $2.25 billion in revenues and EPS of about $3.80 to $4.30 in 2012. Both numbers blew away Wall Street estimates. As a result, Coinstar shares jumped by over 15% on the earnings and outlook news.

The Bottom Line
2012 is set to be a marquee year for Coinstar thanks to strategic investments the company in making in its future growth. With a market capitalization of close to $2 billion and P/E of around 23, shares look cheap by tech industry standards.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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