The stock of Coinstar Inc. rose 25 percent on Friday after it reported its third quarter results and company executives discussed plans for entering the digital streaming market. Coinstar stock closed at $57.58 on Friday.
Speaking to analysts after Thursday's market close, Paul Davis, CEO of Bellevue, Wash.-based Coinstar, took an 'always leave them wanting more approach' when it came to revealing the company's digital strategy.
There has been much speculation on whether and how the company's popular redbox DVD-rental kiosk subsidiary would get into streaming. It has become accepted knowledge that U.S. consumers will shift from kiosk rental to digital streaming to obtain their movies, games and other entertainment.
The questions swirling around this assumption for Coinstar leaders have been numerous: Can redbox continue to grow during the transition phase? Should Coinstar/redbox get into digital? And if so, how, as it would cost major bucks to buy both the content and the technology infrastructure required to compete nationally.
Redbox answered the first question with a resounding "yes" with its third quarter numbers. Its revenues skyrocketed to $306 million, a 54 percent jump from the same period a year ago, and accounted for 80 percent of parent Coinstar's revenues. The company's Coin division, with its coin-counting devices, generated revenues of nearly $75 million, a rise of 7.3 percent.
Coinstar's income from operations was $46.2 million, a 62 percent rise from $28.7 million in the third quarter of 2009. That alone was enough to send the stock popping on Friday. Davis and Coinstar CFO J. Scott DiValerio probably pushed it higher when they announced during the analysts' conference call consolidated revenue guidance for 2010 of between $1.46 billion and $1.49 billion, and guidance for 2011 of between $1.80 billion and $1.95 billion.
The leaders also said there is plenty of room for further redbox installations in the United States, including by yearend 2010 a total of 4,000 dual-kiosks, a larger device that offers more DVDs and higher margins. Further, redbox plans to test its kiosks in the U.K. market next year.
After those great stats and show of confidence, the announcement by Davis regarding digital was almost a bit of an anticlimax.
In a nutshell, Coinstar plans to partner with a firm that can offer both the technology and added content to compete in digital streaming. Coinstar will offer a streaming product in 2011 but it would be premature to report any details beyond that, says Davis, who remained tightlipped as analysts attempted to tease out more information.
Coinstar leadership is in discussions with a number of firms that can provide the technology and content that can build on the redbox brand, says Davis. Attempting to go it alone would require too heavy a capital commitment, he says, so it makes sense to find a partner seeking to use the popular redbox brand name.
Davis says that a winning digital strategy would be "complimentary to our core. It's doing wonderfully. We want to maintain and grow our consumer base."
Davis spelled out redbox's major attractions for a suitor — it has unique credit card numbers and e-mail addresses of about 21 million consumers and about 90 percent of its customers have a broadband connection. Further, the firm has a national footprint with, to date, 26,000 locations.
And redbox customers should be attractive to the digital market, with 65 percent saying they have already purchased digital content, compared with 52 percent of all Americans, Davis says.
He concluded with a sports metaphor: “The space is crowded with a lot of players. It's still in the early innings. We’re positioned to be a winning player.”
(Photo by sean_oliver).