Coinstar Earnings Nearly Double but Outlook Disappoints; Blu-ray on the Way

Coinstar (CSTR), which operates the 26,900 Redbox movie rental kiosks, posted good earnings but its outlook disappointed Wall Street.

Revenue for the second quarter of 2010 increased 34.9% to $342.4 million, compared to the same quarter last year. Income from continuing operations was $12.8 million, or diluted earnings per share of 39 cents, including the accelerated depreciation and share-based payments expense reflected in income from operations, as well as 2.4 million additional shares outstanding, compared with $10.5 million, or 35 cents per share, a year ago.

Coinstar sold its e-payment operations and has set up a plan to sell its money-transfer business. This was accounted for as discontinued operations. Net income attributable to Coinstar for the second quarter of 2010, which includes both continuing and discontinued operations, was $13.4 million, or diluted earnings per share of 41 cents, compared with $7 million, or diluted earnings per share of 23 cents, in the second quarter of 2009. But Coinstar said that in the third quarter revenue would be between $370 million and $390 million, and investors reacted badly.

Coinstar's earnings, however, may not have been the most important news of the day. After putting out its quarterly numbers, the company announced it would begin to sell Blu-ray disks in 13,300 locations immediately. The price of the discs will be $1.50. The firm said that by the fall, Blu-ray DVDs would be available in 23,000 locations. Blu-ray HD disks have begun to replace normal resolution products.

The launch of the Redbox Blu-ray DVD marketing will pose another threat to Blockbuster and Netflix (NFLX) as the Redbox kiosks have proved an improbable but important distribution mechanism. Most industry experts believed that as Blockbuster fell apart over the convenience of DVDs via mail and home video-streaming, Netflix and internet-delivered premium video would replace stores. But kiosks require no on-site employees and the costs that come with operating large stores. Disruption, it seems, does not always come from the most advanced technology.