Outerwall: Not Your Parents’ Coinstar

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Just last month, Coinstar changed its name to Outerwall (NASDAQ: OUTR) in a move that was symbolic of the many changes that have taken place over the years (especially the past year). The company, initially known for its more than 19,000 Coinstar machines, and later for the 36,000 Redbox DVD rental kiosks, has begun the process of becoming so much more than that. From internet video streaming and online payments to coffee and fresh food, Outerwall is expanding far beyond its core businesses to many other areas of automated retail.

Outerwall on your living room wall

A 65/35 joint venture between Verizon (NYSE: VZ) and Outerwall, Redbox Instant by Verizon was officially launched earlier this year to go head-to-head with the likes of Netflix, Amazon.com, and other streaming-video providers. Although still in the very early stages with a small catalog of titles, Redbox Instant is quickly growing by adding new content and device availability.

Redbox Instant found its way into millions of additional living rooms on Monday with the announcement that the very popular Roku internet video-streaming device would be updated to include a Redbox Instant channel. Prior to the announcement, Redbox Instant could be found on a limited, but growing number of devices. Most notably this included the Xbox 360, but also certain internet-connected TVs and Blu-ray players, an iOS app and other recently announced inclusions for the Google Chromecast device and Sony’s upcoming PlayStation 4 video game console.

Owners of Roku set-top boxes, of which over 5 million have been sold to date, now have access to Redbox Instant’s growing list of subscription and on-demand titles.

Seattle’s best partnership

A little more than a year ago, Starbucks (NASDAQ: SBUX) and Outerwall entered into an agreement to rollout thousands of coffee dispensing machines called Rubi. The two Seattle-based companies will make use of Outerwall’s expertise in automated retail and the Seattle’s Best Coffee brand of Starbucks to sell cups of premium coffee to customers at thousands of U.S. grocery stores, drug stores, and other retailers.

By the end of 2013, the two companies expect to have over 2,000 of these 9-foot wide Rubi machines selling cups of freshly brewed pumpkin spice, café caramel, hot chocolate, dark roast, and other coffee flavors. The rollout of these machines will ramp-up fairly quickly, with 500 machines introduced last year, 1,500 additional this year, and multiple thousands expected in 2014 and 2015.

PayPal ATM network

eBay’s (NASDAQ: EBAY) PayPal division receives a ton of attention for its online payment business, but it has also made great strides to expand into the world of offline (brick & mortar) payments. One of eBay’s most recent forays into this area is the inclusion of PayPal functionality at Coinstar machines. Tested on a limited basis last year in Texas and slowly being rolled-out nationwide earlier this year, this new functionality allows PayPal users to deposit coin and paper money directly from Coinstar machines into their PayPal accounts, withdraw money from PayPal accounts to Coinstar machines, and send funds from Coinstar machines to another user’s PayPal account.

Initial tests showed that 40% of Coinstar users who also used the PayPal functionality used the service an average of twice a month. This brings the potential of new growth for Outerwall’s slow-growth, maturing coin-counting business. By essentially turning the nearly 20,000 existing Coinstar machines into a network of PayPal ATMs, Outerwall has found a cheap and easy path for unexpected growth.

Other initiatives

These initiatives are not limited to the above-mentioned three, but also extend to other aspects of automated retail. At the moment, these are smaller ventures and investments, but have the potential to become the next major growth area for the company.

Crisp Market is Outerwall’s automated fresh food kiosk currently being tested in Chicago office buildings. Customers of Crisp Market can purchase premium food items, such as pesto chicken wraps or teriyaki rice bowls, as well as vegetarian, vegan, and gluten-free options. Sample it! is the company’s beauty products kiosk that allows customers to purchase $1 versions of popular cosmetics.

Star Studio is the company’s effort to revitalize the boring photo booth, with internet-connected booths integrated into Facebook and other social media platforms. Gizmo is an eBay-like kiosk that sells popular overstock and refurbished electronic devices such as video game consoles or tablet computers. And lastly is ecoATM, the company’s other eBay-like automated initiative, that allows people to easily sell their old smartphones and tablets for cold, hard cash.

Foolish bottom line

Formed in 1991, Outerwall is approaching its 23rd year of business. This is a company, however, that is not interested in being left in the past. 2012 and 2013 have been particularly transformative years for the company as Outerwall augments existing maturing businesses with new functionality and expanding into entirely new business segments. It is quite clear that Outerwall is no longer your parents' simple coin-counting company; a realization that could become quite profitable for investors in the not too distant future.

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Matthew Luke owns shares of Outerwall. The Motley Fool recommends eBay and Starbucks. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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