CSTR - Coinstar

[yadayada]

isn't it really difficult to get away with? I mean your face finger prints and ID are in the system right? If people report it to the police, the person who stole it should show up right away.

 

So honestly, revenue was down in Q4, they were basically full of shit with their 'up 70%' thing. Why not shut it down after 1-2 more bad quarters? This looks indeed like a big liability. And putting in another 100-200m$ does not seem sensible. Especially if revenue does not jump in Q1 and Q2.  Maybe they can flip it off to someone else for a 100-200m$. Put that in their Sampleit venture? Seems like the most sensible thing to do. Would be nice if Jana partners would jump back in now.

[DTEJD1997]

isn't it really difficult to get away with? I mean your face finger prints and ID are in the system right? If people report it to the police, the person who stole it should show up right away.

 

This is one of the things the article addressed...The thieves frequently use stolen/borrowed/fake ID's to do the transaction.  Allegedly the kiosks have a human on the back end comparing the face to the ID.  However, it was shown to be totally ineffectual and easily fooled...

 

If the human is in Mumbai India, how are they going to know what a fake USA ID looks like?

 

Another HUGE problem addressed in the article was that the kiosks wind up taking stolen phones and then the police come and take them back.  Even if they only paid $30 for a $300 phone, that is still a 100% loss...

 

This sounds like one of the worst possible marketing problems for the kiosks.  Malls don't want to let them in as they foster crime/violence?  Several cities/counties in USA ban them outright? 

 

You would think the brain trust running the company would have figured out these problems after a few dozen kiosks and NOT wasted hundreds of millions on them...

[pantheman]

I'm not sure the issues in the Baltimore article are still as relevant. The major phone manufacturers have taken steps in the last year or two to make it much harder for thieves to resell a phone. If the owner takes the proper precautionary steps to protect their phone, thieves will have a much harder time exchanging the device. You can see this reflected in crime statistics since September 2013. Of course this is assuming the ecoATM technology holds up and doesn't take phones that are locked.

 

And I mention this as someone living in NYC who had their phone stolen in October 2013. The phone was locked and I was contacted to buy my phone back because they couldn't get into it. One police sting later I had my phone back for free.

[pantheman]

Took 6 months to go from 3 million devices captured to 4 million (obviously heavily reliant on the ramp in location installs).

 

http://m.waste360.com/e-waste/e-waste-recycling-kiosks-continue-catch

[mateo999]

Took 6 months to go from 3 million devices captured to 4 million (obviously heavily reliant on the ramp in location installs).

 

http://m.waste360.com/e-waste/e-waste-recycling-kiosks-continue-catch

 

Thank you!  I was waiting to for this to be released, and of course Google Alerts failed me.  These are the simple bits of scuttlebutt that add value, so thanks again.

[yadayada]

yeah though it seems that was still not v good. judging by Q4 results. revenue per kiosk would not be enough to break even, with 10k kiosks. Im kinda annoyed that they don't quickly roll out 5k kiosks. Either do that, or pull the plug. Now they don't have scale, and keep leaking millions of dollars every quarter.

 

By now they should be sure enough this works, after trying it out for years and paying 350 million $ for it.

[rsmehta]

    I change my mind, I am now actually very bullish on ecoatm.

 

----------------------------------------

 

  If you look at the number of phones/MP3 players that are idled/thrown away each year, this number is increasing drastically. Many of these items still have good resale value in developing countries.

 

      They do not need to capture a huge part of this market share for this to be a home run of a venture.

 

      Think about how many iPhone 3G, 4, 4S that must be just sitting around in people's kitchen drawer with almost no use for them across America. RadioShack is out of business, I don't even know if large retailers will even bother with giving any cash for these as they get older and older.

 

      What alternatives to consumers have for these devices???

[Jurgis]

      What alternatives to consumers have for these devices???

 

Ebay. Craigslist. I've sold things on both.

 

It's more of a hassle, but likely to offer higher price than ecoatm.

 

[merkhet]

      What alternatives to consumers have for these devices???

 

Ebay. Craigslist. I've sold things on both.

 

It's more of a hassle, but likely to offer higher price than ecoatm.

 

You'd be surprised what people will do for convenience. Those of us on the board are much closer to Homo Economicus than the rest of the population.

[yadayada]

you could make the same argument for coinstar really... They charge a pretty big %, yet there is an entire population subgroup that still does it. Same for those vulture loans with 200% interest. George carlin nailed it:

Think of how stupid the average person is, and realize half of them are stupider than that.

[Jurgis]

I did not claim that majority of people will sell on Ebay or craigslist. rsmehta asked about alternatives and I told what alternatives are. That's all.

[magno111]

Mr. mecham of arlington value explains his thoughts about OUTR 

 

http://www.valuewalk.com/2015/02/allan-mecham-investments/

 

 

[yadayada]

What is the best course of action with call options vs the dividend? Quickly sell and then buy back?

 

I dont have experience with IB and options, but if the money is in your account, it will pay automatically right?

[Guest roark33]

Mr. mecham of arlington value explains his thoughts about OUTR 

 

http://www.valuewalk.com/2015/02/allan-mecham-investments/

 

FYI--Mecham actually sold down some of his stake in Q4. 

 

 

[TwoCitiesCapital]

Mr. mecham of arlington value explains his thoughts about OUTR 

 

http://www.valuewalk.com/2015/02/allan-mecham-investments/

 

FYI--Mecham actually sold down some of his stake in Q4.

 

Hard to speculate why that might have been - it was up 50% from the lows in the 4th quarter so it may have been him taking profits or resizing the position as opposed to changing how he felt about the value the company offered.

 

Also, I know this is anecdotal, but I asked a bunch of people how they felt about redbox, how often they used it, how they felt about the price hikes, etc. and I largely found the below that I thought was interesting:

 

1) Not a single person that used them cared that they raised the prices. All felt it was still significantly cheaper than alternatives

2) A large number of the parents who responded LOVE Redbox for traveling with their children. They can rent movies anywhere and return them the next day anywhere.

3) Most of the respondents used Redbox "all the time."

 

I know this is only a handful of people and can hardly be generalized to the rest of the population but I'm just having trouble getting at the "perpetual decline has begun" business. I don't see it in the numbers and I don't see it amongst the people that I know that use the service.

[Wilson-TPC]

OUTR guided 205 - 245 mil in FCF for 2015. So Allan's scenario would have to change a bit.

[TwoCitiesCapital]

OUTR guided 205 - 245 mil in FCF for 2015. So Allan's scenario would have to change a bit.

 

Companies are often wrong with guidance and have to revise it upwards/downwards pretty regularly and they never account for foreseeable one offs that "surprise." Also, there could be other motivations to guide expectations higher/lower due to anticipations of pricing stock options, the value of current holdings, the intention to buy/sell soon stock, etc. I'm mindful of what they said but I'm having difficulty getting that to jive with the numbers I'm seeing from redbox in Q4 (and especially those from December). I may change my tune if Q1 is unexplainably bad within this context, but currently the numbers would suggest that management is lowballing here.

 

Also, that guidance was given in the New Year and not Q4. It couldn't have been his reason for reducing.

[frommi]

OUTR guided 205 - 245 mil in FCF for 2015. So Allan's scenario would have to change a bit.

 

Companies are often wrong with guidance and have to revise it upwards/downwards pretty regularly and they never account for foreseeable one offs that "surprise." Also, there could be other motivations to guide expectations higher/lower due to anticipations of pricing stock options, the value of current holdings, the intention to buy/sell soon stock, etc. I'm mindful of what they said but I'm having difficulty getting that to jive with the numbers I'm seeing from redbox in Q4 (and especially those from December). I may change my tune if Q1 is unexplainably bad within this context, but currently the numbers would suggest that management is lowballing here.

 

They even said they were surprised by the effect of the price increase in Q4 and that was just 4 weeks. But perhaps they calculate already that they burn 150-200 million on ecoATM in 2015, than their FCF number may make sense.

[Wilson-TPC]

OUTR guided 205 - 245 mil in FCF for 2015. So Allan's scenario would have to change a bit.

 

Companies are often wrong with guidance and have to revise it upwards/downwards pretty regularly and they never account for foreseeable one offs that "surprise." Also, there could be other motivations to guide expectations higher/lower due to anticipations of pricing stock options, the value of current holdings, the intention to buy/sell soon stock, etc. I'm mindful of what they said but I'm having difficulty getting that to jive with the numbers I'm seeing from redbox in Q4 (and especially those from December). I may change my tune if Q1 is unexplainably bad within this context, but currently the numbers would suggest that management is lowballing here.

 

They even said they were surprised by the effect of the price increase in Q4 and that was just 4 weeks. But perhaps they calculate already that they burn 150-200 million on ecoATM in 2015, than their FCF number may make sense.

 

OUTR is buring 100-125 mil in 2015 on maintenance capex AND ecoatm.

 

So roughly 50-75 mil of growth capex on ecoatm.

[frommi]

They filed some numbers for the redbox canada segment, according to that they lost around 17 million $ in 2014 on 10 million $ in revenue. Now it looks like a really necessary step that boosts earnings by at least 10% going forward. I think thats good news, now i am really curious to the Q1 numbers. It looks like january and february where pretty weak box office months, but march was very good.  Q2 and Q3 of 2015 should be a lot better than Q2 and Q3 of 2014, too.

[TwoCitiesCapital]

http://www.bloomberg.com/news/articles/2015-04-13/this-year-s-summer-box-office-could-be-the-largest-ever

 

This is, in part, why I've been so bullish on Outerwall. This box-office boom was foreseeable several months back knowing that Avengers, Minions, and Jurassic Park are all likely to be huge hits. I'm looking forward to the results of the later half of the year.

[Sunrider]

hmm anyone wondering if this will be a kitchen sink quarter for the CEO though? They've shut down Canada, canceled some of their Chicago leases, etc. all of which entails provisions for this and provisions for that .. perhaps enough to offset the benefits of last year's price increase (especially couple with a fairly week release schedule early this year)?

 

... just wondering ...

 

C.

[mateo999]

hmm anyone wondering if this will be a kitchen sink quarter for the CEO though? They've shut down Canada, canceled some of their Chicago leases, etc. all of which entails provisions for this and provisions for that .. perhaps enough to offset the benefits of last year's price increase (especially couple with a fairly week release schedule early this year)?

 

... just wondering ...

 

C.

 

I personally expect them to announce they're somehow shuttering EcoATM and writing off almost the entire investment.  Google Trends for the business are basically flat despite an ever-growing installed base.  My scuttlebutt indicates that the boxes offer ridiculously low values.  On one hand you'd think this is a good thing, but on the other hand, any business that will only thrive on the stupidity of its customers (a customer base that's collectively and continually better-able to compare used electronic prices) is probably not long for this world.

[rsmehta]

hmm anyone wondering if this will be a kitchen sink quarter for the CEO though? They've shut down Canada, canceled some of their Chicago leases, etc. all of which entails provisions for this and provisions for that .. perhaps enough to offset the benefits of last year's price increase (especially couple with a fairly week release schedule early this year)?

 

... just wondering ...

 

C.

 

I personally expect them to announce they're somehow shuttering EcoATM and writing off almost the entire investment.  Google Trends for the business are basically flat despite an ever-growing installed base.  My scuttlebutt indicates that the boxes offer ridiculously low values.  On one hand you'd think this is a good thing, but on the other hand, any business that will only thrive on the stupidity of its customers (a customer base that's collectively and continually better-able to compare used electronic prices) is probably not long for this world.

 

  Why do you think ECOatm is a bad business model???

 

  Every year there are more and more second hand phones for sale in the US. These phones have massive value in international markets.

 

  I agree that their pricing structure seems very flawed, and it's a price sensitive market. However, they have got to be the most convenient and lowest cost operator for any family of four that wants to upgrade to the next generation of iphones and don't know what to do with their current iphones.

 

  End of the day, they need to capture a very small % of this market for this to be a homerun of a venture.

[Guest chok.sing.ping]

Hi,

 

Below are my thoughts on why Outerwall's shares are undervalued. I apologise for the lengthiness and would appreciate your feedback. Thank you.

 

At current price, market assumes at least 40-45% drop in Redbox’s revenue. Even if this scenario does pan out eventually, the risk of a falling share price would be mitigated by management’s commitment to buy back shares using 75-100% of free cash flow.

 

Redbox is able to charge the lowest price for movie entertainment; a position that is unlikely to be challenged. Majority of Redbox’s customers are from lower-income households with large families and cost is a major factor in the discretionary spending decisions of this income group. For the 23 million households in the U.S. with less than $20,000 annual income, a dollar or two cost savings (renting from Redbox as opposed to digital download) could go a long way in providing significant financial relief. Redbox customers are also transactional in nature and the transition to binge watching is unlikely, rendering streaming services with subscription-fee models less of a threat.

 

Many people forget that DVDs are not the product itself, but a medium to deliver movie entertainment, and demand for movie entertainment is likely to remain stable in the future. If DVD rental at Redbox can provide the lowest price for movie entertainment (as compared to other alternatives like going to the theatre and streaming), demand is likely to sustain. Also, in order for studios to abandon DVDs, it has to make business sense. Typically, studios generate most of their profits from DVD sales and have been finding it difficult to replace them. DVDs, due to their high margins, will remain an avenue for studios to sell and/or license their movie content. In addition, DVDs provide wholesale (higher volume) and distribution advantages (wider penetration) which digital sales could not.

 

The current scenario of 40-45% fall in Redbox’s revenue would imply $100-115 million of adjusted free cash flow. $100-115 million of free cash flow is achievable, considering the assumptions used are very conservative. If Redbox’s revenue eventually decreases 40-45% within three years, Outerwall’s share price would be $76 if management remains committed to buying back shares. Due to reasons above, sustainable free cash flow could very well end up above $100-115 million. A fair value based on $150 million sustainable free cash flow would imply a share price of $89 after one year of share repurchase, and $110 after three years.

 

Although not central to the investment thesis, there are some signs that imply existing cash flows are sustainable: One, management has declared cash dividends for the first time ever in their history; Two, management has taken on debt to repurchase shares (not prudent but it somewhat shows management’s confidence); Three, studios have accepted stock of Outerwall as part of the licensing agreement which could imply studios’ belief in the profitability of Outerwall’s business.