Coinstar Follows Netflix Down the Rabbit Hole
Despite upbeat third-quarter results, Coinstar (NASDAQ:CSTR) shares took a hit Friday after the company gave a weaker-than-expected earnings forecast and raised prices for the company’s popular Redbox DVD-rental kiosks.
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Coinstar shares were down nearly 9% with less than two hours left of trading on Friday. Late Thursday, the Bellevue, Washington-based company announced that it would raise the price of renting a standard-definition DVD at a Redbox kiosk from $1 to $1.20, effective October 31. Blu-Ray rentals will still cost between $1.50 and $2 a day.
Coinstar is getting a taste of what Netflix (NASDAQ:NFLX) has been going through since it announced in July that it would increase prices on its DVD-by-mail service. Like Netflix, Coinstar said the price hike was necessary. It is the first in eight years for Redbox, and is the result of higher debit-card transaction fees, an outgrowth of the Dodd-Frank Act.
Netflix shares have dropped nearly 70% in the last three months, and in a report earlier this week, the company announced the loss of roughly 800,000 subscribers during the last quarter. Of course, as Netflix’s main competition in terms of DVD rentals, Redbox could see “an incremental boost from Netflix DVD subscriber attrition” in the fourth quarter, according to Michael Pachter, an analyst for Wedbush Securities.
Taking into account the impact of the price increase, Coinstar expects to earn between 57 cents and 67 cents a share on revenue of $485-$510 million. The earnings forecast fell short of a consensus estimate of analysts surveyed by FactSet Research, who predicted earnings of 78 cents a share on revenue of $483.3 million.
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Coinstar reported third-quarter earnings of $37.1 million, or $1.18 a share, on $465.6 million in sales, up from $19.5 million, or 60 cents a share, on revenue of $380 million in the same quarter last year. Forecasts had Coinstar earning 88 cents a share on $462.6 million in revenue.