Outerwall Inc. (OUTR), the owner of Redbox DVD rental machines, tumbled the most in almost a year after second-quarter revenue fell short of analysts’ estimates as consumers took out fewer films from kiosks for shorter periods.
Outerwall declined 13 percent to $56.69 at the close in New York, following the company’s earnings release yesterday. The decline, the steepest since July 27, 2012, pared the stock’s gain for the year to 9 percent.
Outerwall is developing new automated businesses to maintain growth as demand slows for its $1-a-day DVD rentals. The Bellevue, Washington-based company owns 35 percent of Redbox Instant by Verizon, a streaming and DVD rental service, and is introducing Rubi kiosks that offer fresh-brewed coffee. It also will get a boost from Hollywood studios in the third and fourth quarters as hit movies become available for rental.
“The release slate appears strong, with both box office revenue and number of titles going to Redbox in the quarter up year over year for the first time in many quarters,” said Michael Olson, an analyst at Piper Jaffray Cos. (PJC) in Minneapolis, in a research note this week. He rates the shares overweight.
Sales rose 4.1 percent to $554.2 million, below the average estimate of $564.3 million. Net income jumped 27 percent to $46.9 million, or $1.64 a share, from $36.9 million, or $1.11 a share, a year earlier, the company said in a statement. Profit was boosted by a gain on the sale of some kiosks and a change in accounting for DVD costs.
For the third quarter, Outerwall forecast adjusted profit of $1.36 to $1.51 a share on revenue of $604 million to $630 million. Analysts were anticipating $1.63 a share, the average of 11 estimates, on sales of $614.1 million.
The company, which changed its name from Coinstar Inc. in June, said in a July 24 filing that it completed the $350 million acquisition of EcoATM, a kiosk business that lets consumers trade in smartphones, tablet computers and MP3 players for cash. The electronics then are sold to other companies for refurbishment or recycling.
“We’ve been able to increase our overall customer base with Redbox, and I think that bodes well for the future,” J. Scott Di Valerio, Outerwall’s chief executive officer, said yesterday in an interview. “We’re looking at a solid back-half of 2013.”
Redbox Instant probably was a beneficiary of Netflix Inc. (NFLX)’s declining mail-order DVD business, which lost 470,000 subscribers in the second quarter, said Eric Wold, an analyst at B. Riley & Co. in San Francisco, who has a buy rating on the stock. The Redbox unit accounts for about 85 percent of the company’s revenue, Piper Jaffray’s Olson said.
Subscription mail-order services captured 22 percent of the DVD rental market in the first six months of the year, according to data from NPD Group, a Port Washington, New York-based researcher. That was down from 26 percent a year ago. Kiosk rentals gained 1 percent to 39 percent of the market, NPD found.
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