Shares of Coinstar (CSTR) have shown some signs of life recently, with more upside movement in the past few weeks than they have seen since their precipitous fall during July of this year. As of the close on Dec. 10, 2012, CSTR is up 16% since closing at $43.46 on Nov. 14. What's driving this rebound could very well be the creeping realization that the company has a good chance of significantly exceeding Q4 guidance, which was set back in October when the effects of the Olympics were still fresh in management's and investor's minds.
The following analysis is based largely on actual numbers provided by the company, with the overlay of independent but verifiable data about Q4's movie release slate.
We start with the average revenue per Redbox kiosk during Q4 of 2011. This information comes directly from the Oct. 25, 2012, "Segment Supplement Q3 2012" link provided on Coinstar's Investor Relations Page. Redbox Segment Revenue was $445,591,000 during Q4 2011. Dividing this figure by the number of Redbox kiosks (34,400) as of the end of Q3 2011, we get average revenue per kiosk for the quarter of $12,953.
The Segment Supplement tells us that there were 42,400 Redbox kiosks installed as of the end of Q3 2012. If we multiply this number of kiosks by the average revenue per kiosk from last year's Q4 of $12,953, we arrive at Redbox Segment Revenue for Q4 2012 of $549,216,813. To be conservative, we add this to COIN segment revenue of $75 million (assumes near-zero growth vs. Q4 2011 despite higher quarterly numbers vs. 2011 for Q1, Q2, and Q3), and arrive at total company revenue of over $624 million compared to guidance of $552 to $602 million. Again, being conservative, this assumes zero revenue from the New Ventures group.
Now, there are a number of reasons why per kiosk revenues for Redbox could actually exceed last year's Q4. These reasons include:
- Strong box office release slate (box office of titles released up 10% vs. Q4 2011, number of titles released up 17% vs. Q4 2011)
- Management's stated intention to buy "deeper" during Q4 vs. previous fourth quarters to accelerate the U-shaped recovery as discussed on the Q3 2012 earnings call Oct. 25, 2012
- Last year's Q4 included the month of October at the old $1/day price point, as well as the month of November during which all Internet reservations were charged at the $1/day price
- Lowest viewership of World Series on record in Q4 2012
- NHL strike during Q4 2012
- Addition of high-quality/high-foot traffic Publix and Safeway supermarket locations as part of the acquisition of NCR's Blockbuster Express
- Additional market share grab from continued closures of Blockbuster and other bricks-and-mortar video rental outlets
- Q4 2012's addition of Redbox gift cards
If one assumes that as a result of the reasons stated above, per kiosk revenues are up just 5% for the quarter vs. 2011, then the implied revenue would be $651 million, all else being equal -- or nearly $50 million over the high end of guidance. A performance of this nature would lend credence to the bull's viewpoint that Redbox still has room to grow as a provider of low-cost entertainment to the nation's movie watchers.
- CSTR has closed over $50 per share for the past 4 trading sessions.
- Short interest was last reported at 11.27 million shares, or 38% of float.
- Tax planning could cause profitable shorts to cover their positions by year-end to avoid higher expected capital gains taxes in 2012, adding additional upside pressure to shares.
- The company announced on Nov. 1, 2012, an accelerated share repurchase agreement with Morgan Stanley to repurchase $75 million of stock.
Given the recent price action, it is possible that short covering has already begun and is partly responsible for the uptrend over the past few weeks. Regardless, the combination of high short interest as a percentage of float with the possibility for a strong revenue/earnings beat could produce an extended run higher into the end of the year.