Coinstar, Inc. (CSTR) Has a Problem

Coinstar seems to be confident enough. The midpoint of its revenue guidance for all of 2013 — $2.465 billion — is less than Wall Street was modeling, but it’s 12% over 2012. Put another way, Coinstar sees the trend of decelerating growth continuing on an annual basis but reversing itself after this past quarter’s single-digit spurt.

That seems a bit ambitious, don’t you think?

The flag-waving clincher here is that Coinstar is buying itself time to make that happen. Coinstar sees revenue in the first quarter posting a year-over-year gain of 0% to 4%. That’s flat growth at the low end! Wall Street was eyeing a 10% advance.

In its prepared remarks it’s even bracing investors to expect its Redbox performance metrics during the first half of 2013 to be comparable to 2011, and that’s scary since we’re talking about the company before the price cuts and when Blu-rays were a smaller part of revenue mix.

Coinstar believes that things will bounce back during the second half of the year, but the smart money has to be with the skeptics here. Just as GameStop has been in denial as its fundamentals crumble around its model, don’t be surprised if Coinstar’s aggressive guidance for 2013 comes down with every passing quarter.

The wild card, naturally, is Redbox Instant by Verizon. If the service takes off — and Redbox claims that hundreds of thousands of people have requested access to the beta — this story will turn itself around. Unfortunately, it’s going to be extremely difficult to catch up to Netflix in building out its digital vault, and the allure of four nightly DVD credits a month will continue to fade as folks wean themselves off optical discs.

The shares may be selling off in light of the soft revenue and even softer guidance, but this isn’t a buying opportunity. Let Coinstar prove that it can live up to its lofty growth goals for the latter half of this year. You deserve that much as an investor.

The article Coinstar Has a Problem originally appeared on Fool.com and is written by Rick Aristotle Munarriz.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of GameStop and Netflix.

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