The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
On Wednesday, Coinstar held its Analyst Day in San Francisco.
Wednesday’s presentation was focused on growth, in contrast to our belief that investors view the company as a business that is approaching maturity. For the most part, the presentation focused around growth opportunities in Redbox, Coinstar (NASDAQ:CSTR), and New Ventures. Redbox and Coinstar appear to have neared market saturation domestically, with only expansion into Canada and perhaps Australia/New Zealand remaining before the business is fully mature. We think that most investors are concerned that New Ventures growth will come at a steep price, given extremely modest contribution in the past year and continuing capital expenditures.
New Ventures has contributed losses the past several years, and Redbox Instant by Verizon has negatively impacted 2012 profitability and free cash flow; we believe investors would prefer management to establish the continued viability of the company’s Redbox and Coinstar businesses and harvest cash before embarking on a chase for untested and potentially expensive growth opportunities. In total, management believes that revenue can growth from over $2 billion in 2012 to over $4 billion in 2017, representing 25% of the total automated retail sweet spot of ≈ $16 billion. Less than half of the revenue growth is expected to be from Coinstar’s core businesses, and the remainder from New Ventures.
Much of the presentation focused around Coinstar’s New Ventures kiosk businesses: Crisp Market (fresh food), Rubi (coffee), Sample It! (beauty products), and Star Studio (photo booth). Of the New Ventures, Rubi’s rollout will be the most expansive (at least in the near-term), although its success will largely be determined by…