Media provider giant Netflix (NFLX) has some competition with Redbox, and from the looks of things, they’re losing.
Redbox, which is owned by Coinstar (CSTR), did not begin by streaming content like Netflix, but instead reverted back to renting out DVDs. The major difference is that Netflix requires a monthly subscription, while at Redbox you pay as you go, $1.20 for a DVD.
What could be making Redbox more competitive is the current economic climate. For casual movie-watchers Netflix’s subscription of $8 a month to stream content, and another $8 for DVDs, is less attractive than $1.20 per DVD. Redbox has also recently come to an agreement with Verizon (VZ) to get into the streaming business, becoming a direct competitor to Netflix. For more on this partnership click here.
The 1-year return on Netflix is -74.5%. Coinstar’s is +34.1%
Differences in Growth
One of the main areas where the stocks differ is in the analyst prediction for growth.
Netflix was at first predicted to operate at a loss this year, but now it’s possible that they will get out of the red and see some profit. Netflix is expected to see a 13% sales growth this year, and 15% the next.
Coinstar, on the other hand, is projected 23% sales growth this year and 35% the next.
Zacks analysts rate NFLX at “Hold” and CSTR as a “Moderate Buy”.
Diversification:
There is also more to Coinstar then just Redbox and entertainment rentals. They recently came to terms with Starbucks to provide Seattle’s Best Coffee in kiosks similar to their coin counting machines. The stock jumped up 6% following the news.
Business Section: Investing Ideas
Netflix has about $300 million more in sales, but looking towards the future, the growth predictions along with the Verizon partnership explains the analyst ratings that favor Coinstar. How do you see this battle of content providing companies playing out?
Use the Compar-O-Matic to see how Zacks analysts rate the two stocks:
Press “Play” on the Turbo Chart to compare the stock prices of NFLX and CSTR:
1. Netflix, Inc. (NFLX, Earnings, Analysts, Financials): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $3.48B, most recent closing price at $62.66.
2. Coinstar, Inc. (CSTR, Earnings, Analysts, Financials): Provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. Market cap at $1.97B, most recent closing price at $62.80.
3. Verizon Communications Inc. (VZ, Earnings, Analysts, Financials): Provides communication services. Market cap at $124.29B, most recent closing price at $43.75.
(Written by Ryan Horch)
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Coinstar's growth will abate as DVD's phase out. When this will happen is anyone's guess. What we do know is that when it does, it will be material for Coinstar. Anyone investing in this company should strongly consider trimming your position as the company rises in the near future. As for Netflix, they are at the forefront for the future of content viewing. However, they are only a service, albeit, the leading service provider for streaming movies/shows. As content continues to evolve, Netflix would be wise to diversify their business by acquiring content producing properties. Their focus to develop their product is obviously the near term priority. International streaming services will be a key wildcard as to pushing Netflix's future revenues and profitability. If they can capture strong growth this can be a game changer as international streaming may evolve as the leading segment.
The shift in content and the companies that own future Internet content will be the biggest winners as demand for licensing content is only going to grow.