Coinstar Inc. (CSTR:US), owner of the Redbox DVD rental kiosks, rose after executives said new businesses such as its movie-streaming venture and Rubi coffee kiosks will add to profit over the next three years.
Coinstar gained (CSTR:US) 5.2 percent to $52.60 at the close in New York, the most since Feb. 14. The Bellevue, Washington-based company has advanced 1.1 percent this year.
The new ventures will account for 10 percent to 15 percent of Coinstar’s revenue within three years, helping to boost profit margins and free cash flow, Galen Smith, senior vice president for finance at Redbox’s retail unit, said on a call with analysts. Redbox Instant, a joint venture with Verizon Communications Inc. (VZ:US) scheduled to begin in the first quarter, will combine online streaming with DVD rentals for $8 to $9 a month.
“We know customers are piecing together these elements on their own,” Redbox Instant Chief Executive Officer Shawn Strickland said on the call. “It was important for us to bring these elements together.”
Coinstar’s “core” diluted earnings per share (CSTR:US) may increase 11 percent to 18 percent over the next three years, Smith said, without providing figures. That measure excludes profit from the company’s 35 percent share of Redbox Instant and some other items, Coinstar said.
The company will generate free cash flow of $650 million to $750 million over the same time frame, Smith said. In a Feb. 7 statement, the company forecast annual free cash flow from continuing operations for $180 million to $200 million for 2013.
Some of the cash will probably be used for share buybacks or a new dividend, Eric Wold, an analyst with B. Riley Caris, said in an e-mail.
By offering four free kiosk rentals per month as part of Redbox Instant, the company intends to push more traffic to the machines to boost additional rentals and help another new venture; using the kiosks to sell tickets to events such as concerts, Redbox President Anne Saunders said.
“They have laid out some interesting ways to drive growth,” said Wold, who rates the shares buy.
The Rubi coffee venture, with kiosks in five cities including Los Angeles and Chicago, will add 10 more in 2013. The company estimates the annual market for automated coffee at about $800 million, said David Veenstra, Coinstar’s senior vice president for strategy and new ventures.
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