It Won't Get Any Better For Redbox This Quarter

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Outerwall Inc OUTR is scheduled to report its 1Q16 results on Thursday, April 28. Roth Capital Partners’ Darren Aftahi reiterated a Neutral rating for the company, with a price target of $35, saying that the company is likely to report another weak quarter for Redbox rentals.

High Promos Impacted 1Q

Roth Capital Partners’ proprietary analysis indicates a decline of about 24 percent y/y in rentals, broadly in-line with the estimate of a 27 decline. This is worse than the decline of ~25 percent in 4Q and would mark the third consecutive quarter of over 20 percent y/y declines.

“While we expect a mostly in-line 1Q with our below consensus estimates, we remain concerned that high levels of email promotion and discounts via third-party sites suggest that despite a more solid content line up, Redbox’s business continues to be challenged,” analyst Darren Aftahi wrote.

The promos for Redbox seems to be “elevated and consistent” via email and other channels so far in 2016, even though Redbox-related Domestic Box Office has improved marginally on a y/y basis. This reflects Outerwall’s efforts to “retain and drive high-frequency renters, who make up the majority of Redbox revenue,” Aftahi commented.

He expressed concern that despite healthy content in the boxes, the overall Redbox business continued to be challenged.

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Posted In: Analyst ColorReiterationAnalyst RatingsDarren AftahiROTH Capital Partners
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