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Coinstar reports 16% Q2 increase, promises self-service expansion

In Tuesday's second quarter earnings call, Coinstar announced positive results and emphasized broadening its kiosk business.

August 4, 2009

A rare bright spot in the continually troubled economy, Coinstar Inc. yesterday reported a 16-percent revenue increase for the second quarter over Q1 2009. The company sold $314 million during the second quarter, up an even-more drastic 43 percent over Q2 2008.Coinstar's net income was $7 million.

In the company's conference call with its investors, chief financial officer John Harvey attributed the strong performance to the continued rapid growth of its DVD business, bolstered by its acquisition of redbox earlier this year.

"This increase was driven primarily by continued strong growth in our DVD business, which increased 110 percent year-over-year to $188.9 million," Harvey said. "We continue to expand our installed kiosk base, and at the end of the quarter, we had 17,900 kiosks installed, compared with 9,600 a year ago."

During the call, chief executive Paul Davis spoke at length about Coinstar's recent self-examination and its resulting plans to focus on expanding its presence in the retail self-service segment.

"We've been spending a lot of time digging deep into our business, identifying which product lines will deliver the highest returns for both our retail partners and our shareholders," he said. "We believe we've landed on something pretty exciting. … It's clear to us that our core strength is in the area of automated retail. … The combination of retailer demand, consumer adoption, our core competencies and opportunities for innovation all point to this as being a sustainable platform for future growth."

Davis cited a recent survey from NCR Corp. and Buzzback Market Research indicating that 86 percent of consumers are more likely to do business with companies that provide multichannel self-service, as well as numbers from IHL Group projecting that self-service transactions will grow from $775 billion in 2009 to $1.6 trillion by 2013. Coinstar will leverage its established presence in the market to take advantage of that projected growth, Davis said.

"You could point to numerous examples where consumers either don't like the time that's required for standing in line or the inconvenience of a special trip for a product or service they need that we could satisfy by offering that product or service where they go every day – grocery or convenience stores, gas stations and drug stores," he said. "These channels alone point to thousands of locations for an automated retail footprint. In fact, based on our current footprint of kiosks, approximately 150 million consumers pass by our kiosks per week – something that many entrepreneurs would envy as they think about how to get their great kiosk in front of hundreds of people."

The CEO spoke briefly about Coinstar's recent $460 million distribution deal with Sony Home entertainment. Davis said Coinstar intends to replicate such DVD-distribution deals with other studios in the future.

"We clearly understand the impact of fostering collaborative relationships with the studios," he said. "Just two weeks ago we announced a long-term partnership with Sony, and we continue to have positive conversations with other studios along the same lines."

Coinstar, the rest of the year, will focus on its two main kiosk businesses — DVD-rental and coin-counting — by continuing to expand both applications' footprints, moving some Coinstar kiosks to better locations, expanding and increasing consumer awareness of its fee-free coin-exchange options and extending its entertainment-kiosk offerings to include video games and Blu-Ray.

Though he wouldn't share specifics, Davis also discussed a dedicated team the company has put together to collaborate on new ideas for the automated retail market.

"At any point, we'll have five to seven ideas we'll be testing on a small-scale basis, and once we're satisfied, we'll be ready to scale," he said. "We'll likely not talk a lot about them until they pass our own set of internal hurdles."

According to Davis, Coinstar will "pursue strategic alternatives," for its money-transfer and e-payment lines of business, further allowing it to focus on self-service applications.

According to Reuters, Coinstar shares, which have gained more than 47 percent over the last six months, rose $1.36 to $35.91 yesterday and closed at $34.55.