EcoATM, a maker of in-store kiosks where shoppers recycle used phones, tablets and other electronics, is a failure, according to an analyst who tracks the company.
Outerwall, the parent company of Coinstar and Redbox, purchased ecoATM in 2013 for $350 million in cash.
In its earnings report Thursday, Outerwall announced an $85.9 million impairment charge related to the ecoATM business, driven by what it called “competitive pressures on ecoATM and lowered expectations for future revenue growth.”
“The impairment charge reflects an honest assessment that the company overpaid for the business, and continuing losses two years after acquisition make us question whether the segment will ever be profitable,” wrote Michael Pachter, an analyst with Wedbush Securities.
Outerwall obviously disagrees with that assessment.
“Although we recognized a goodwill impairment for ecoATM during the quarter, given its unique value proposition, we still expect ecoATM revenue growth and profitability over time as the business scales,” interim CEO Nora Denzel said a press release.
Outerwall installed 120 new ecoATM kiosks in the quarter, bringing the total to 2,260. Revenue in the segment was $26.1 million, up 9.5 percent compare to the same period last year.
Fixing the ecoATM business will be one of the challenges of newly-appointed Outerwall CEO Erik Prusch, the former Clearwire CEO who took the helm of the company Thursday.
Shares of Outerwall are getting hammered today, down more than 10 percent. The company, whose stock is up 31 percent in the past 12 months, is now valued at $1.5 billion.
Outerwall’s revenue was down slightly in the second quarter to $545.4 million, and its net loss mushroomed. Wedbush’s Pachter expected revenue of $567 million for the quarter, but he was surprised by an increase in gross margin tied to higher prices at Redbox. He lowered his forecast for the company’s 2015 revenue to $2.35 billion.
See Outerwall results below.