DVD Kiosk Operator Redbox To File For IPO

This story was written by Joseph Weisenthal.
Redbox, the distributor of DVDs via kiosk, plans to file for an IPO sometime during the current quarter, reports VideoBusiness (via NTV). The company, which is majority owned by publicly traded Coinstar, operates kiosks in over 5,000 locations across the country in stores like Walgreens and McDonald's (which owns a significant stake as well). DVDs are rented at the simple price of $1 per disc per night (so no late fees, per se). The fast growing company is a Netflix (NSDQ: NFLX) competitor, though Netflix claims that it does more damage to traditional video stores, who mainly want to convenient outlet for renting hit titles. Unlike Netflix, the selection skews decidedly towards the fat head, rather than the long tail of films

Sans the S-1 filing, a look through Coinstar's financial info provides a few details into the company's business: In its latest quarterly, the company said it paid $5.1 million to up its stake from 47.3 percent to 51 percent, or 3.7 percent of the company. Technically, this values the company at $138 million, but as explained on its last quarterly earnings call, the purchase raised from a previous option, so that doesn't reflect what the company's actual market cap would be. In fact, Coinstar said the company is worth somewhere between $400-$800 million.

On that call, management also provided some impressive financial info for Redbox: " Looking at Chart 5, revenues in 2005, 2006, and 2007, were 12 million, $45 million and $133 million respectively. That adds up to a 233 percent top line CAGR over that period. And based on recent news of roll-outs or expansions with Wal-Mart (NYSE: WMT), Walgreens and others, we believe Redbox will have revenues of between $250 to $270 million in 2008. As we sit here today, we see the financial leverage in the Redbox business. Looking at Chart 7, during 2007 Redbox produced over $8 million in EBITDA and was net income positive for November and December. And for 2008 we believe that Redbox will achieve EBITDA of between 20 and $30 million implying an EBITDA margin of 10%, roughly 400 basis points above 2007."

By Joseph Weisenthal