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bullWedbush Morgan analyst Michael Pachter has expressed divergent opinions recently on the present and future financial health of Netflix and Redbox parent Coinstar. While Pachter has concerns about Netflix’s earnings growth potential, he sees “solid growth for the foreseeable future” at Coinstar’s Redbox unit.

Pachter feels that Netflix’s per-user revenue will decline as more customers join Netflix for the sole purpose of accessing its unlimited video-streaming plans. Pachter also expressed concern that Netflix’s COG (cost of goods) could increase if studios demanded higher prices for distribution rights to digital titles. According to Video Business, “Netflix estimates that it will maintain a 10% operating margin as it invests more in its video-streaming service”.

Said Pachter:

“It is clear that Netflix’s streaming initiative is driving subscriber growth and helping margins, but this growth has attracted the attention of the movie studios. . . The studios are seeking higher payments for streaming content, and Netflix’s 10% margin cap appears to us to be a concession to the studios.”

Redbox, on the other hand, has some solid growth ahead of it if Pachter’s predictions come to pass. While the Coinstar-owned company may lose its DVD release window lawsuit against one or more studios, Pachter anticipates steady Redbox growth for at least the next little while.

“With revenues expected to grow so fast, even with lower margins, we believe the Street is vastly underestimating the company’s overall profitability next year. . . We believe that higher potential cost of sales can be offset by higher pricing for movie rentals,”

Pachter’s “higher pricing” comment makes him at least the second analyst to express confidence in Redbox’s success in spite of potential price increases that may alienate some customers. Is Pachter right on this count, Insiders? What about his somewhat gloomy take on Netflix’s future?

[via Video Business and Barron’s]

3 Responses to “Analyst Bearish on Netflix, Bullish on Coinstar (Redbox)”

  1. Visitor [Join Now]
    CashewNutt [visitor]

    At $1 or $1.50, I’ll continue to rent. But any more than that and I’ll go to the Family Video store down the street. For $2/$3 I get 1/5 day rentals on DVD and for $2.50/$3.50 I get bluray rentals for 1/5 days. Plus I get the newest releases. Don’t misunderstand me, I love Redbox and want them to do well and will continue to rent as long as they provide the value.

  2. Visitor [Join Now]
    John Small [visitor]

    Pachter must be on crack. Coinstar is barely running a profit. To say that it is vastly understated shows a fundamental lack of understanding of what makes a company profitable.

  3. Visitor [Join Now]
    Vernon Dent [visitor]

    It is called “pump and dump”.

    This is as old as publicly stock trading. Redbox is attracting media attention for any number of reasons. Coinstar no doubt has plans to either spin out Redbox, maybe for an IPO, or to sell off the property. Perhaps some of the Asian companies that have done well in the last decade might be stupid enough to buy.