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Redbox Parent Outerwall Beats Views, Not Negative Sentiment

Redbox movie rental kiosk operator Outerwall ( OUTR ) easily beat Wall Street’s expectations in the first quarter, but most analysts remained cautious on the stock. Outerwall stock rose 3.1% to 41.31 on the stock market today . Late Thursday, Outerwall said it earned $1.97 a share on sales of $536 million in the March quarter. Analysts polled by Thomson Reuters expected Outerwall to earn $1.33 a share on sales of $508 million. On a year-over-year basis, earnings per share fell 31% and sales fell 12%. Redbox generated 138 million rentals in Q1, down from 173 million rentals in the year-earlier quarter. The decline in disc rentals was driven by a secular shift to streaming video services such as Netflix ( NFLX ) and fewer Redbox kiosks in operation. Outerwall is planning to launch a new streaming video service called Redbox Digital, Variety reported last month . It would be the DVD rental firm’s second attempt in online video. It launched a streaming service called Redbox Instant in a joint venture with Verizon Communications ( VZ ) in early 2013, but it was shut down after about 18 months. Redbox contributed 79% of Outerwall’s revenue in Q1. The company’s Coinstar and ecoATM businesses accounted for the rest. “While share and debt repurchases and other forms of financial engineering are helping the EPS line, the secular decline in DVD demand and execution issues at Redbox are creating significant challenges,” Dougherty analyst Steven Frankel said in a research report Thursday. “We continue to believe that ecoATM isn’t scalable and the combination of box office volatility, shifting viewing patterns toward episodic TV, and the rise of streaming create significant challenges for Redbox.” Frankel rates Outerwall stock as neutral. Pacific Crest Securities analyst Andy Hargreaves reiterated his underweight rating on Outerwall late Thursday. “Outerwall expects Redbox transactions to decline 15% to 20% in 2016, a level that we expect to continue indefinitely,” Hargreaves said. “At this pace of decline, we believe the company will be at increasing risk of negative leverage against its fixed costs and per disc purchasing agreements.” RELATED: Redbox Owner Outerwall Doubles Dividend, Explores Possible Sale

Redbox Owner Outerwall Doubles Dividend, Explores Possible Sale

Automated retail kiosk operator Outerwall ( OUTR ), parent company of Redbox and Coinstar, late Monday doubled its quarterly dividend and said its board is exploring “strategic and financial alternatives to maximize shareholder value.” Outerwall has been under pressure from investment firm Engaged Capital of Newport Beach, Calif., to take action to improve its value. On Feb. 18, Engaged Capital, which owns 14.6% of Outerwall’s shares, sent a letter with its recommendations to the company’s directors. Those recommendations included exploring a transaction to take the company private. Engaged also said Outerwall needs to better manage its cash and cut costs. It recommended discontinuing share repurchases, paying down debt and increasing its dividends. Further, it said Outerwall should shut down or sell its struggling ecoATM business, which buys and resells used smartphones and tablets. After the market close Monday, Outerwall issued a press release saying that it has retained Morgan Stanley as its financial advisor and Perkins Coie as its legal advisor in exploring alternatives for the Bellevue, Wash.-based company. Outerwall also raised its quarterly dividend to 60 cents a share from 30 cents a share. Outerwall stock jumped 9% in after-hours trading. In the regular session Monday, Outerwall stock rose a fraction, to 34.39. Shares have plunged nearly 60% since touching a record high in July. “The increase of our quarterly dividend to this sustainable level, and the decision to explore strategic and financial alternatives both clearly demonstrate that the Outerwall board of directors and management team are committed to acting in the best interests of the company and all shareholders,” Outerwall CEO Erik Prusch said in a statement. “The board and management team will evaluate all options thoughtfully and carefully with the support of our advisors. “Throughout the review process, Outerwall will remain focused on executing on our operational plans, managing our businesses for profitability and cash flow, and continuing to align costs with revenue to create operational efficiencies, while returning significant capital to our investors.” Challenging fundamentals for Outerwall could a roadblock to big strategic moves, Dougherty analyst Steven Frankel said in a research report Monday. He rates Outerwall stock neutral. “While we applaud management’s willingness to explore its strategic alternatives, we expect the process could be hamstrung by the material fundamental challenges that the company faces,” Frankel said. “Redbox continues to face stiff headwinds from box office volatility, the shift in consumer viewing toward episodic TV and the ubiquity of streaming, while ecoATM looks to us as a sub-scale business challenged by Apple ( AAPL ) and the carriers’ more aggressive push to repurchase old devices.” Redbox is being challenged by consumers opting more to use streaming services like Netflix ( NFLX ) and video-on-demand offerings from their pay-TV providers. RELATED: Redbox Faces Hit From Accelerating Shift To Streaming Video  

Redbox Faces Hit From Accelerating Shift To Streaming Video

Automated retail kiosk operator Outerwall ( OUTR ) late Thursday beat lowered expectations for the December quarter. But shares of the Bellevue, Wash.-based company fell Friday as the firm’s guidance pointed to a rough year ahead for its Redbox DVD rental business. Outerwall stock was down 15% in midday trading, below 28, on the stock market today . It had fallen as much as 24% earning and is at its lowest level in six years. Piper Jaffray analyst Michael Olson on Friday threw in the towel on Outerwall stock, lowering his rating to neutral from overweight and slashing his price target on the stock to 32 from 57. “Redbox faces secular headwinds, and while we do not expect a ‘fall off a cliff’ scenario, we believe the trend is accelerating and will continue to drive year-over-year revenue and EPS decline,” Olson said in a report. Redbox competes with streaming video services like Amazon.com ( AMZN ), Hulu and Netflix ( NFLX ). Olson is modeling for a 26% year-over-year decline in rentals per Redbox kiosk in the first quarter and a 17% decline for all of 2016. Outerwall reported Q4 EPS of $1.43 on sales of $527.2 million, ahead of previously lowered guidance and above the Street view of 64 cents on $512.3 million. But the company’s outlook for 2016 is materially below consensus. Outerwall anticipates 2016 EPS of $5 to $6.30 vs. the Street’s estimate of $7.14. Outerwall CEO Erik Prusch remained upbeat about Redbox, which provided 77% of revenue in Q4, despite acknowledging ongoing secular declines in the market. “Redbox is a compelling business, providing new movie releases to millions of loyal consumers at a great value,” he said in a statement . “We will manage the business for profitability and cash flow, and we will continue our focus on expense management, operational efficiencies and network optimization.” Prusch said he sees a long life for the DVD rental business. “We are confident that millions of consumers will continue renting from Redbox for many years to come, as a majority of our customers use Redbox to complement digital alternatives,” Prusch said. Outerwall also operates Coinstar coin-redemption kiosks and ecoATM used-electronics-purchasing kiosks. Redbox generated 135.8 million rentals in the fourth quarter, down 24% from the same quarter a year earlier. In 2016, Outerwall expects to reduce its number of Redbox kiosks by 1,000-2,000. It ended 2015 with 40,480 Redbox kiosks, compared with 42,280 at the end of 2014. Dougherty analyst Steven Frankel reiterated his neutral rating on Outerwall in a report Thursday. “While share repurchases and other forms of financial engineering are helping the EPS line, the secular decline in DVD demand and execution issues at Redbox are creating significant challenges,” Frankel said. “Until we see signs of stability at Redbox, we view Outerwall as the classic value trap.” However, Wedbush analyst Michael Pachter believes Outerwall can wring more profit out of its operations. In a note Thursday, he maintained his outperform rating on the stock but cut his price target to 40 from 59.