Analyst Says 'Significant' Questions Remain at Coinstar (CSTR), Previews Q2

Shares of Coinstar (Nasdaq: CSTR) are getting hit Friday morning as a research note from Dougherty's Steve Frankel previewing the company's second-quarter results is getting passed. The stock plunged more than 5 percent to an intraday low at $63.24, however, has bounced and is now down about 3.5 percent to $64.73.

Frankel is expecting a strong quarter from Coinstar when it reports on Thursday, July 26th, but warned a number of significant questions remain. The analyst proposed the following:

• With the recent closing of the NCR Blockbuster kiosk business, what’s the timetable for swapping out the hardware and how many of the acquired locations are likely to remain in service?
  
• When does the acquisition become accretive on a non-GAAP basis?
  
• What is the rollout plan for Redbox in Canada and the coffee kiosk business?
  
• Can the Verizon JV offer a competitive streaming product without a significant increase in capital beyond the initial commitment of $450M (of which $157.5M comes from CSTR), especially given that this year Netflix (Nasdaq: NFLX) is spending north of $1.5B for content and has an annual marketing budget north of $580M?
  
• If Redbox/Verizon isn’t willing to spend the kind of dollars that Netflix has been spending, how can it build an attractive enough offering to attract enough
  customers to achieve profitability?
  
• How does Redbox/Verizon plan to compete with the simple alternative of
  combining an $8/mo.
  
• Netflix streaming subscription with ad hoc visits to Redbox for access to new releases?

Frankel is maintaining a Neutral rating on Coinstar shares ahead of the results amid "the issues of volatility and the potential for substantial losses and additional capital needs in order for the [Redbox/Verizon] JV to succeed."

Visit our Analyst Ratings page to track all the market-moving analyst action on shares of Coinstar.

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