350 Million New Reasons to Avoid Netflix, Inc. (NFLX)? – Verizon Communications Inc. (VZ), Coinstar, Inc. (CSTR)

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Coinstar, Inc. (NASDAQ:CSTR) made waves last week after announcing it would take on $350 million in new debt. Many investors jumped to a quick conclusion: Coinstar, Inc. (NASDAQ:CSTR) is padding its coffers in order to mount a bigger challenge against Netflix, Inc. (NASDAQ:NFLX).

Sure, the automated retailer’s new streaming venture with Verizon Communications Inc. (NYSE:VZ), called Redbox Instant, is just getting off the ground. It barely registers on Netflix, Inc. (NASDAQ:NFLX)’s radar at the moment. But that could be set to change.

Netflix, Inc. (NASDAQ:NFLX)And it’s already feeling crowded in this market. Amazon.com, Inc. (NASDAQ:AMZN) is busy snapping up content for its Prime streaming service, to the tune of more than $1 billion a year. We know that Netflix, Inc. (NASDAQ:NFLX) spends upwards of $2 billion for content each year. Now we can add one more heavy bidder to the group that’s sending prices skyward, as the worry goes.

But I think Netflix, Inc. (NASDAQ:NFLX) doesn’t need to fret that Coinstar, Inc. (NASDAQ:CSTR)’s new wad of cash will usher in a more competitive marketplace. Here are three reasons why.

Stock buybacks
First, Coinstar may just be looking to buy more of its own shares. The company didn’t get specific in its debt announcement, saying only that it plans to use the cash for “general corporate purposes” like repaying debt or making other investments.

Netflix, Inc. (NASDAQ:NFLX) said about the same thing when it priced $500 million in new debt earlier this year. The streamer told investors that it would use about $200 million to pay off more expensive debt, with the remainder going toward general corporate purposes . At a $2.1 billion annual run rate in content costs, we have a good idea what those purposes are.

But as Netflix, Inc. (NASDAQ:NFLX) has been ramping up content spending, Coinstar, Inc. (NASDAQ:CSTR) has been busy buying itself. Here’s a look at how much the company spent on share repurchases over the past three years:

Year Total Purchase Price
2010 $49 million
2011 $63 million
2012 $140 million

Source: Coinstar financial filing.

That strong pace of spending is continuing into 2013. Coinstar spent $45 million more on buybacks just in the first five weeks of this year. That’s an expensive habit, and one that could easily be a major reason for taking on some new debt at low rates.

New retail expansion
But Coinstar has plenty of business investments to direct that cash toward, too. After all, the company isn’t just about Redbox entertainment kiosks. Its popular DVD stations account for the lion’s share of revenue. Yet it has loads of non-Redbox-related expansion in the works right now.

We’re talking everything from vending food and beverages to electronics. Altogether, Coinstar sees a long runway toward the $16 billion total market potential for automated retailing. Heading up the list of Coinstar’s expansion markets is its Rubi coffee kiosk, which will begin rolling out in Q2. Management is excited about the growth potential there, and called the coffee vending machines a “major area of focus” in 2013. Coinstar sees room for as many as 70,000 coffee kiosks, as compared to the 44,000 Redbox machines it maintains now.

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