It still amazes me how Coinstar (Nasdaq: CSTR) turned a coin sorter, strongbox, and computer into a viable business model. It was successful enough to launch the more successful RedBox. Now the company is trying something new with both the Rubi and Redbox Instant. I like the Rubi, and am skeptical about Redbox Instant. I have read some stuff about Redbox Instant that might change my opinion a bit. At the same time that we dig into CoinStar we can consider the partners it has hitched itself to as well as competitors. CoinStar is priced nicely if you believe in the new products, though I would like to see debt go down. The company is making money, which is always good.
CoinStar Presents Rubi
Rubi is a kiosk like RedBox that dispenses Seattle’s Best Coffee. It is being tested in a few markets, and seems to be performing well according to the last earnings call. A wider rollout is expected, and as soon as I spot one I will be sure to sample some of the coffee. I think Rubi will find a nice following. RedBox manages to bring in the money and I remember when it was a $1 per day. I think it is $1.50 per day, which is not that much of an increase.
Seattle’s Best is a subsidiary of Starbucks (Nasdaq: SBUX). That is a strong partner to have, although I imagine it is just another outlet for Seattle’s Best to sell coffee. Not sure if there is any preferential treatment for CoinStar other than using the brand and getting wholesale rates on the coffee. Still with the success of the Rubi the volume of coffee sold might go up. Seattle’s Best is not that widespread. I only ever recall them being in Borders stores. With those closed, I have not seen a Seattle’s Best in a long-time.
I am curious to know exactly where the kiosks will be placed. I wouldn’t want them overlapping with Starbucks, because I do not think that would bode well for the success of the Rubi. Then again the lower price might make it the vendor of choice for that 3rd through 5th cup that empties out my wallet. We do not yet have many numbers on what the Rubi is expected to do for the company’s cash flow, but there is an estimate of $200M in sales. It is not likely to do anything to Starbuck’s fantastic sales just due to the difference in quality, which is completely understandable.
I do not know what revenue it will bring to Starbucks, but at least it only has to provide the coffee. That could at least boost margins. However, Starbucks is an appealing investment on its own, because of the Verismo machines, expansion into India and China, and the acquisition of Teavana. There are a lot of growth drivers in Starbucks. This may be one of the smallest, but it is still among them. I think Starbucks is a solid company to own and I do not think waiting for a better price is necessary.
RedBox Instant: A CoinStar Production
I am not sure we need another streaming service. Fragmentation is one of my fears for the market, because a lot of these companies that are in the spotlight because of streaming might collapse once the space contracts into a few key players. Thankfully streaming has not gotten as out of control as social media or gaming, or the solar industry. Still there are too many choices with only bits and pieces of content. People like a unified choice with a ton of content options, and it has to be quality content. Netflix lacks a lot of content, which is why I barely use the streaming. If not for the documentaries I think I would relinquish it entirely. I kept the DVD service as long as I could, before deciding I did not need it. The price is just not right anymore. RedBox Instant has an interesting price structure that will couple with its kiosks. The service is new so content should not be held against it. It is still in beta.
CoinStar has linked up with Verizon Networks (Nasdaq: VZ) for Redbox Instant. That is another major partner in a new push. I cannot seem to find too much information on the benefit to Verizon so I imagine it is just getting a cut of the subscription revenue. Verizon is placing some people in top spots of the joint venture probably because of its expertise. Verizon has almost $120B in revenue so if you are going to invest in the venture you want to go for the junior partner who is also profitable.
Verizon is very profitable and has growing revenue and earnings. The company is in a strong position, and the stock has been pretty flat and the dividend is fantastic at 4.80% so it might be worth taking a position, but not because of Redbox Instant. Perhaps on its own merits. I prefer smaller companies with more growth potential, though a strong dividend always wins some points with me.
It is unlikely that RedBox Instant is a Netflix killer. The highest price for Redbox Instant is $9, which gives unlimited streaming and four blu-ray rentals from a kiosk per month. That is enticing for people who do not use their Netflix account heavily. The slow internet in this country, compared to Singapore or Korea, will also weigh on the quality available through streaming. The full 1080p HD might lag a bit. I like Coinstar for Rubi, and could be worth a position. I want to wait for some information regarding the geographic rollout and the numbers from existing locations.