Goodbye, Coinstar. Hello…Outerwall Inc (NASDAQ:OUTR)?
This week Coinstar went through a name change, reflecting its diversified set of businesses. The company operates several vending businesses from Coinstar to the beloved Redbox, with its hands in a few new upstart projects.
Does this new name change reflect a new era?
Inc (NASDAQ:OUTR)’s current product mix is showing some age. A potential end to the U.S. penny threatens Coinstar. Redbox is built atop DVDs and BluRays, physical media that is losing to on-demand online services like Netflix, Inc. (NASDAQ:NFLX).
The company is rapidly seeking out a new product to be its cash cow. Redbox contributed $386.7 million to the company’s operating profits in 2012, yet it required a cash infusion of only $1.1 million in maintenance CapEx. The aging business is spinning off tons of cash, cash Coinstar doesn’t have anywhere to invest.
The company is desperately seeking the next big vending product. Let’s take a look at some of the new products in the pipeline.
This coffee vending product is the star of its new ventures portfolio. Rubi has an exclusive contract with Seattle’s Best, a subsidiary of Starbucks Corporation (NASDAQ:SBUX) to sell cups of coffee with the press of a button (Read: Rubi just borrowed one of the world’s best brands and locked it down for itself).
The partnership with Starbucks makes Rubi and immediate leader in the space. Where other single cup servers are known for lower quality, off-brand products, Rubi sells only the Seattle’s Best name. No other vending company can use the same coffee in its machines.
Outerwall Inc (NASDAQ:OUTR) claims big potential for this one-cup coffee vender. The economics are particularly impressive, with 25 average daily vends at an average price of $1.30. Total revenue per unit came in at an average of $12,000 in 2012.
Though $12,000 doesn’t compare to the $50,000 in revenue of the average Redbox in 2012, the margins in coffee are enormous. The average DVD survives for only about $30 in rental revenue at Redbox, which doesn’t leave much for profits. Coffee, however, costs just pennies per cup.
Outerwall can leverage its existing Redbox locations for quick placement of its Rubi units. It placed units with Wal-Mart and Sam’s Club, plus a number of well-known, high-traffic national retailers.
All in all, Outerwall Inc (NASDAQ:OUTR) believes the company is fighting for an addressable market of $800 million, and it’s going for it. The company claimed 80 locations in January, with plans to invest heavily, taking the product to new markets. After bringing out a second version of the Rubi, the unit can hold twice as much coffee and vend two sizes (12oz and 16oz) to add marginal profitability. The company’s big investment shows this product has huge profit potential given Outerwall’s goal of 20% annual returns on invested capital for its mature businesses.
This may be the coolest product in Outerwall Inc (NASDAQ:OUTR)’s lineup. The company recently agreed to buy the remaining 77% of ecoATM it didn’t own at a valuation of $350 million.
The company turns used electronic devices into cash. Those that have little or no market value are recycled for free.