Outerwall cuts Q3/2013 guidance, shares halted


Outerwall (OUTR) now expects Q3 revenue of $569M-$589M and EPS of $0.82-$0.94, below prior guidance of $604M-$630M and $1.36-$1.51, and a consensus of $609.4M and $1.45. (PR)

2013 guidance has been lowered to $2.274B-$2.339B and $4.72-$5.12, below prior guidance of $2.372B-$2.475B and $5.76-$6.26, and a consensus of $2.38B and $5.91. Full-year free cash flow guidance has been lowered to $170M-$188M from $211M-$227M.

CEO J Scott Di Valerio: "Although both rentals and revenue for Redbox increased significantly in July and August over 2012 levels, they were not to our expectations.  In addition, heightened promotional discount activity, which added new customers during the quarter, had an adverse impact on the expected average transaction size and we believe drove consumers toward more single night rentals."

The company adds it plans to buy back another $100M worth of shares starting in Q4, on top of the $100M it has already committed to repurchase. Outerwall has bought back $95M worth of shares thus far in 2013.

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Comments (15)
  • Trader's Profit Compass
    , contributor
    Comments (2072) | Send Message
     
    stock destroyed AH
    16 Sep 2013, 04:52 PM Reply Like
  • Esekla
    , contributor
    Comments (4758) | Send Message
     
    It looks like all those who pounding the table about the DVD business dying may have had a point:

     

    http://seekingalpha.co...

     

    I will comment there after further analysis.
    16 Sep 2013, 06:18 PM Reply Like
  • Momintn
    , contributor
    Comments (6086) | Send Message
     
    Rentals for July and August grew year over year 13.4% and 15.7% respectively, with July representing Redbox's best rental month in its history, with approximately 74 million rentals.
    The problem is people rented one dvd at a time, using credits, and they need to charge more. There is no competition at all in local dvd rental.
    But the big problem is their spending money in New Ventures. The ecoATM is thought to be a good one though.
    16 Sep 2013, 07:02 PM Reply Like
  • CapitalistDesi
    , contributor
    Comments (48) | Send Message
     
    I am skeptical on how good of a buy ecoATM was. Revenue from ecoATM is too low for the buying price.
    16 Sep 2013, 07:38 PM Reply Like
  • PSound
    , contributor
    Comments (305) | Send Message
     
    Yep.

     

    See the comments in this thread for a detailed breakdown of the secular decline in the optical disc rental market.

     

    http://seekingalpha.co...
    17 Sep 2013, 12:37 AM Reply Like
  • Esekla
    , contributor
    Comments (4758) | Send Message
     
    ^ pro subscription required
    17 Sep 2013, 01:22 AM Reply Like
  • PSound
    , contributor
    Comments (305) | Send Message
     
    Not to read the comments.
    17 Sep 2013, 01:30 AM Reply Like
  • Esekla
    , contributor
    Comments (4758) | Send Message
     
    Your link shows the first few sentences of the article only. No comments.
    17 Sep 2013, 08:55 AM Reply Like
  • PSound
    , contributor
    Comments (305) | Send Message
     
    Bummer. I am not a Pro Subscriber and can read the comments.

     

    I will look at re-posting some of the data in these comments.
    17 Sep 2013, 11:56 AM Reply Like
  • PSound
    , contributor
    Comments (305) | Send Message
     
    So indeed, it does look like they locked off the comments section (maybe Seeking Alpha is backtracking after having Editor Comments endorsing CSTR/OUTR as being undervalued).

     

    Here is just some of the data I posted. There was more that clearly showed the error of investing in the physical media rental market, but this is what I have locally (although all can be reproduced by looking at DEG data).

     

    The short story is that BILLIONS of consumer dollars have left the physical media market in the last couple of years (the numbers below do not include the exodus of dollars from subscription based physical media rental).

     

    For more information about the trend of physical media rental, and how the lack of revenue to cannibalize from B&M rentals will impact Redbox growth.

     

    Combined Revenue in $millions (B&M Rental and Kiosk):
    H2 2010: 1759.73
    H2 2011: 1605.01

     

    2010 (full year): 3578.42
    2011 (full year): 3275.67

     

    Q1 2011: 905.38
    Q1 2012: 828.36

     

    NOTE: Q2 2011 is where kiosks start generating more revenue than B&M

     

    Q2 2011: 796.55
    Q2 2012: 759.67

     

    2011 (full year): 3275.67
    2012 (full year): 3153.79

     

    Q1 2012: 828.36
    Q1 2013: 766.01

     

    Seeing the trend? Physical media rental is in steady decline, even after 7 quarters of kiosks being the largest revenue driver.

     

    And now we are seeing signs of kiosks being directly pulled down by this undeniable trend of money AWAY from physical media rentals. And that is what one would expect once the cannibilization of B&M was complete.

     

    So again... Based on these trends, how does Coinstars 8-17% annual growth for the next 3 years possibly hold water?
    22 Sep 2013, 03:22 AM Reply Like
  • Esekla
    , contributor
    Comments (4758) | Send Message
     
    Regarding the comments being locked down, SA is going through a lot of growing pains, so I would not even assume the change is intentional. Staff has claimed that articles can be viewed without registration, but that is simply not the case, and when other authors confirmed the behavior the went completely silent on the matter. Hopefully they'll get thing worked out and learn to be more open on such issues eventually. See this thread for detail: http://bit.ly/15jHNhd

     

    Regarding your stats, to meaningful they would have to be stated as a total percentage rental revenue. I don't doubt the shift to streaming, since that's what the studios want, as it gives them greater control. In light of that, and their rather poor output, I see the entire market shrinking, and DVDs continuing to hold a surprisingly substantial percentage of that shrinking market since the kiosk model is more suited to occasional renting.

     

    In light of the sorry direction of the movie industry, I actually think Outerwall is doing all the right things. They may be behind the curve in predicting the decline of movies, and the associate impact on their kiosks, but they are still a cash cow, and the only one that avoids overpaying for content, both on the DVD and streaming sides. Furthermore, they are diversifying into other areas of automated retail better than anyone else out there. I wouldn't pay a premium until I see better evidence of rampant success in that diversification, but the stock is dirt cheap after the latest correction.
    22 Sep 2013, 06:40 PM Reply Like
  • joei
    , contributor
    Comments (130) | Send Message
     
    First, PSound, you are right that there is a decline in the optical disc rental market. Technology usually wins out if it can reduce cost and/or increase convenience. Just ask Blockbuster and a host of others.

     

    Redbox has taken the best of what the store rental DVD business offered, new releases, and packaged them in minimal floor space. Perhaps when everyone can instantly view new releases on their device of choice, the physical disc market will disappear. We are moving in that direction, but we are not there yet.

     

    I think about 15% or so of the population is still using analog TV sets. Everyone does not have all of the latest gadgets or a cable subscription, etc. So, as long as there is a market for physical rentals, it will continue.

     

    Redbox Instant is following the path Netflix did when they moved their mail order customers to streaming. Outerwall needs to be conservative in their forecasting as they transition Redbox customers (no telling how many are Verizon customers) to streaming. Wall Street loves you to beat a forecast, but don't dare miss on the low side.
    22 Sep 2013, 07:53 PM Reply Like
  • Momintn
    , contributor
    Comments (6086) | Send Message
     
    Don't trade after hours. Revenue and earnings still looks slightly higher than last year. It's a cheap stock, so don't sell it unless you have to. They are buying back 7% of their stock in the 4th quarter.
    16 Sep 2013, 06:41 PM Reply Like
  • joei
    , contributor
    Comments (130) | Send Message
     
    Actually, I look for blow-ups in the after hours. OUTR fit the prescription as it is a stock I have been trading in and out of over the past couple of years.

     

    Re their business, I like the move to Redbox Instant (the hook-up with Verizon) for the long-term and for the short-term, what can be better than a vending machine at the entrance/exit, dispensing entertainment for just over a buck. For years, supermarkets have made their easy money on impulse buying with endcaps, in-aisle displays and cash register aisle displays. Redbox fits that mold.
    17 Sep 2013, 10:06 AM Reply Like
  • lukebrdn
    , contributor
    Comments (4) | Send Message
     
    Why isn't there more talk about Rubi, OUTR's new coffee machine? True, it isn't clear what the business's margins are at this point, but it seems more customers would buy a $1 coffee at a grocery store daily than rent a movie. What do y'all think?
    17 Sep 2013, 10:59 AM Reply Like
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