Coinstar Takes Netflix Head On With Redbox Instant

| About: Outerwall Inc. (OUTR)

Redbox, owned by Coinstar (NASDAQ:CSTR), announced some details from its highly anticipated move into streaming Wednesday. The company, in a partnership with Verizon (NYSE:VZ), is taking Netflix (NASDAQ:NFLX) and its customer base head on by offering discs from its kiosks and streaming options from home.

Along with its network of over 38,000 kiosks, Redbox customers can now choose a monthly option that will include discs and streaming. For $8 a month, customers will be able to rent four movies from a kiosk each month and have a limited amount of streaming options. Customers who don't want to make the trip to the kiosk can choose a streaming only plan for $6 a month. Blu-ray fans cans pay an extra $1 to have a premium service.

The streaming details will be announced at a later date, as the new service is in limited Beta testing currently. Redbox does have good relationships with several large movie companies, including Warner Brothers (NYSE:TWX). Redbox also has a deal with EPIX, a premium movie library owned by Paramount (NYSE:VIA), MGM, and Lions Gate Entertainment (LGF). Redbox will also launch a movie download site separate from the monthly subscription option. The company will compete with Amazon (NASDAQ:AMZN) and Apple's iTunes (NASDAQ:AAPL) in the paid movie download segment.

Back in October, I recommended shares of Coinstar due to its diversification away from Redbox kiosks. Wednesday's news doesn't diversify the company away from Redbox, but does provide an additional source of revenue. Along with Redbox, Coinstar is expanding kiosks in other areas. The two most recent were Event Tickets and Seattle's Best Coffee kiosks.

An earlier article which first discussed the Seattle's Best kiosks, also touched on kiosks being tested. Among them are:

  • Gizmo - tablets, phones, and video game consoles for sale
  • Star Studio - photo shoot kiosk
  • Beauty - beauty products
  • Prepared food on the go products
  • Alula - sell back unused gift cards
  • SoloHealth - health risk analysis
  • EcoATM - kiosk to sell back and recycle old electronics

In the third quarter, Coinstar reported a revenue increase of 16%. The results were driven by an 18% increase from Redbox and a 3% increase from the company's coin kiosks. The company beat earnings per share estimates for each of the last four quarters.

Analysts on Yahoo Finance expect the company to earn $0.71 in the fourth quarter from $578.9 million in revenue. For the full fiscal year, Coinstar is expected to post earnings per share of $4.62. The following fiscal year, analysts see earnings jumping to $5.19. Coinstar guided for full year revenue of $4.50 to $4.65.

Shares of Coinstar trade at 11 times the current fiscal year earnings. However, with the fiscal year only a quarter away, it's time to look towards the 2013 fiscal year. Shares trade at only ten times next year's expected earnings. The new kiosks and subscription plans will boost revenue and could lead to increased earnings estimates, when Coinstar announces guidance on February 4th. Coisntar is a great stock to get behind for 2013.

Disclosure: I am long LGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.