Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've followed Coinstar (NASDAQ: CSTR) for a while now and this is truly a case of the story getting better and better as it evolves.
Many investors think of Coinstar as just their two main brands -- Coinstar and Redbox. However, there are many more concepts that Coinstar is piloting and revenue streams that have just begun. Doubters believe that as DVD distribution slows, Redbox will see worse results. However, if Coinstar executes on its opportunities, Redbox will just be one of the multiple profitable divisions.
One new platform for profits that Coinstar is pursuing is a tie in with eBay's (NASDAQ: EBAY) PayPal division. This agreement allows Coinstar's users to fund their PayPal account from the coins they put into the machine. However, that's not the end of the agreement. More important is the fact that users can also withdraw funds from their PayPal account at the machine as well. Users seem to like the integration, as 40% of users in the test market have returned to use the machine again. This gives PayPal many locations for users to have access to their accounts with an ATM-like accessibility.
A second partnership that Coinstar is rolling out is a kiosk to distribute Starbucks (NASDAQ: SBUX) Seattle's Best coffee. This kiosk is called “Rubi” and is being rolled out with over 500 kiosks expected before the end of 2012. Rubi brews coffee, lattes and mochas starting at $1 per cup. The company has generated $11,000 to $12,000 in annual sales per each test machine. Longer-term, Coinstar believes that Rubi can grow to at least 15,000 machines.
Coinstar is also testing kiosks for electronic products such as tablets, phones, and video game consoles that has just five test locations, with the potential to grow to at least 2,000 locations. Star Studio is another new concept, designed for teens to have an interactive photo shoot. There are only nine locations currently, but Coinstar believes this division can grow to at least 4,000 units. Coinstar is also piloting kiosks for both beauty products and a machine that will allow users to trade their unused gift cards for cash. Last, the company has invested in EcoATM, which provides cash for used cell phones. While there are expected to be 100 EcoATMs by the end of 2012, the company says they expect “thousands” to be placed in the next two years.
When you consider that Coinstar can install a kiosk anywhere that space is a challenge, there are hundreds of markets the company could enter. I've suggested before that big box retailers like Target (NYSE: TGT) could take advantage of Coinstar's expertise in replacing some of their space-eating inventory. A great example is CDs, DVDs, and video games. All of these items are relatively small and could be more efficiently sold through a kiosk rather than sitting in aisles and aisles of racks. This is a massive opportunity that would give Coinstar a huge growth opportunity and would allow Target to operate smaller stores with the same selection. The effective use of kiosks to save space could be the silver bullet that allows brick-and-mortar retailers to compete more effectively with online stores.
As you can see, Coinstar has the opportunity to provide a kiosk solution for many industries. While Redbox is the company's primary growth driver today, the company is not resting on its laurels. With Coinstar selling for just over 12 times forward earnings and expected to grow at 18.64%, the stock looks like a bargain. I would suggest adding Coinstar to your Watchlist to keep up with developments with this dynamic company.
MHenage owns shares of Coinstar. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services recommend eBay and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.