thefatbaboon Posted November 25, 2014 Share Posted November 25, 2014 just wish they made it a bit less then 2$. there are good reasons a lot of prices are just under a whole number. I'll take the other side of your argument. The difference between 1.95 and 2.00 is irrelevant. For someone that rents 30 movies over the course of a year from Redbox, that equates to an extra $1.50....extraordinarily minimal even for someone on the low end of the wage spectrum, especially when you consider that the Redbox provides an alternative to the cost of Netflix + highspeed internet. I don't dispute that there is a proven psychological impact when pricing something just under a whole number, but that presumes that there is a reasonably priced alternative. In this case, the "reasonably" priced alternative (highspeed internet + Netflix, or cable + VOD/SVOD) is still substantially higher than Redbox. No one is arguing that 5c is material but i think yada's point is that all those thousands of retailers who choose price points like $0.99 and $19.99 must have spent a ton of time and money and have decades of actual in market experience contributing to the decision that those points were superior to $1 and $20. Link to comment Share on other sites More sharing options...
pantheman Posted November 25, 2014 Share Posted November 25, 2014 just wish they made it a bit less then 2$. there are good reasons a lot of prices are just under a whole number. I'll take the other side of your argument. The difference between 1.95 and 2.00 is irrelevant. For someone that rents 30 movies over the course of a year from Redbox, that equates to an extra $1.50....extraordinarily minimal even for someone on the low end of the wage spectrum, especially when you consider that the Redbox provides an alternative to the cost of Netflix + highspeed internet. I don't dispute that there is a proven psychological impact when pricing something just under a whole number, but that presumes that there is a reasonably priced alternative. In this case, the "reasonably" priced alternative (highspeed internet + Netflix, or cable + VOD/SVOD) is still substantially higher than Redbox. Speaking of the costs of high speed internet...http://bgr.com/2014/11/22/why-is-comcast-so-bad-28/ Gotta think if this comes to fruition nationally the value proposition and longevity of Redbox greatly increases. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted November 25, 2014 Share Posted November 25, 2014 Speaking of the costs of high speed internet...http://bgr.com/2014/11/22/why-is-comcast-so-bad-28/ Gotta think if this comes to fruition nationally the value proposition and longevity of Redbox greatly increases. Interesting. As a reference point, I just looked up Netflix data usage and it seems to mostly be under 1 GB/hr (but HD can be as high as 2.3 GB/hr). At this non-HD rate, watching one movie could be roughly 0.5% of the monthly data cap that Comcast is suggesting. Link to comment Share on other sites More sharing options...
shhughes1116 Posted November 25, 2014 Share Posted November 25, 2014 Wow... If there was competition in the cable/broadband market, I would be less concerned about data caps. However, in most areas (mine included), there simply is no competition. My city will not even provide other providers with the right-of-way necessary to install their equipment and fiber/cable, thus my binary choice is comcast or no internet service (my HOA prohibits the installation of satellite dishes). Link to comment Share on other sites More sharing options...
Travis Wiedower Posted November 25, 2014 Share Posted November 25, 2014 Yup. And even in cities like mine that have multiple ISPs, in actuality they don't compete as much as you'd think. In my apartment, the entire building is wired for one ISP and that's our only option. And then my office building is only wired for one ISP as well (a different one) and all tenants must use it. Link to comment Share on other sites More sharing options...
frommi Posted November 26, 2014 Share Posted November 26, 2014 I hope they know what theyr doing.. Let's say revenue decreases, but they keep like 20% of the price increase, that is an additional 100m$ in pretax income. My calculator says when redbox revenue is 20% higher FCF and EBITDA are 300-400 million $ higher. So this company is able to eat the whole marketcap in around 2-3 years. I bought a 5% position and will buy more on further weakness. Or are their licence costs bound to their selling price/i missed something? Ant btw. 50% of their float is shorted, so in around 1 year there are no shares to short left. Link to comment Share on other sites More sharing options...
yadayada Posted November 26, 2014 Share Posted November 26, 2014 FCF from core business is around 300m$ now, exluding new ventures. If they don't lose revenue with price increase, then after tax, FCF will be around 6-700m$ yes. But I doubt they get to keep it all. In reality I think you will probably see somewhere between 50-150m$ increase in FCF. They will lose a small % of customers because of the price increase. If new ventures takes off, FCF of core business stays relatively stable, then you could see around 400m$ from Coinstar + Redbox. And possibly 100-200m$ from new ventures. Or about 5-600m$ in FCF in 2-3 years. That is if price increase does not cause a collapse in rentals. And if new ventures is not going to be a drag. Seems like in the money LEAPS are the best way to play this with buybacks and all. if you put a modest 8x multiple on let's say 550m$ (implying FCF will go down), that is a market cap of 4400m$ . Or a share price of 275$ on 16m shares. Link to comment Share on other sites More sharing options...
frommi Posted November 26, 2014 Share Posted November 26, 2014 You are right, i put all my cash to work now in LEAPs and commons. Man i was never that greedy before. Link to comment Share on other sites More sharing options...
Arden Posted November 27, 2014 Share Posted November 27, 2014 Damn, I've just found this and my hands are shaking like an addict because this seems so cheap, good thing there is no trading today or I would've bought some without even finishing the report 8) Besides EcoATM, what are the other "other businesses" that have not been discontinued? I am from Israel, so I have trouble finding some information that I could've just gone to a Redbox machine to get, Do you know how much Redbox machines charge for a game rental? How much time does the 2.5$ buy you with the disk? a week? Are there late fees? Finally, I see video games are about 2%, and Blu ray about 17%, is the rest all DVDs? Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted November 27, 2014 Share Posted November 27, 2014 Damn, I've just found this and my hands are shaking like an addict because this seems so cheap, good thing there is no trading today or I would've bought some without even finishing the report 8) Besides EcoATM, what are the other "other businesses" that have not been discontinued? I am from Israel, so I have trouble finding some information that I could've just gone to a Redbox machine to get, Do you know how much Redbox machines charge for a game rental? How much time does the 2.5$ buy you with the disk? a week? Are there late fees? Finally, I see video games are about 2%, and Blu ray about 17%, is the rest all DVDs? Games were $2 a day going to $3. The rental charge is per day and is good til next day at 9pm. After that an additional days rent is charged. After $25 have been charged the dvd is yours to keep. Likewise for games after $50. So if you rent something at 6 pm today and return it at 8pm tomorrow you will pay $2 (under the new rate). If you returned it tomorrow at 9:30 pm you owe 2 days rent ($4.00). Link to comment Share on other sites More sharing options...
Sunrider Posted November 27, 2014 Share Posted November 27, 2014 For all the greedy ones out there .. why are you so greedy now ... I think similar discussions happened earlier in the year when we were at around the same price level (a bit higher even?). Yes, we now see some pricing power (hopefully demonstrated & maintained without too much of a drop in traffic) ... but that was part of the theory for a while, no? Is it just that you now happened to look at the stock or is there something else that excites you? Thanks - C. Link to comment Share on other sites More sharing options...
yadayada Posted November 27, 2014 Share Posted November 27, 2014 I think the size of the price increase is suprising. That is why the stock went up. I thought they would increase prices another 5-10% , but not by this much. Pricing power was expected to add at most like 20-30m$. Maybe 50m$. Now it can potentially add 100-150m$. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted November 27, 2014 Share Posted November 27, 2014 Sunrider, Well I've been greedy on this for awhile, but as yadayada said the size of the price increase is certainly attractive. I'm praying it stays at these levels (or lower!) until Jan/Feb when I'll have more cash to deploy. More than the price increase, my greed has always been founded in the back of envelope analysis: Coinstar TTM operating income of $117M * 6 = $702M for a stable business that isn't going anywhere and has a very large moat. Current market cap of $1.3B - $700M = $600M for Redbox valuing it at 1.6x TTM operating income. Throw in ecoATM for free. Now ecoATM could cost them money but everything management has said is that it's performing how they predicted and on pace to profit in 2015. Obviously more to the story then that but a simple, attractive back of envelope analysis is a good place to start. Link to comment Share on other sites More sharing options...
thefatbaboon Posted November 27, 2014 Share Posted November 27, 2014 Sunrider, Well I've been greedy on this for awhile, but as yadayada said the size of the price increase is certainly attractive. I'm praying it stays at these levels (or lower!) until Jan/Feb when I'll have more cash to deploy. More than the price increase, my greed has always been founded in the back of envelope analysis: Coinstar TTM operating income of $117M * 6 = $702M for a stable business that isn't going anywhere and has a very large moat. Current market cap of $1.3B - $700M = $600M for Redbox valuing it at 1.6x TTM operating income. Throw in ecoATM for free. Now ecoATM could cost them money but everything management has said is that it's performing how they predicted and on pace to profit in 2015. Obviously more to the story then that but a simple, attractive back of envelope analysis is a good place to start. Don't forget the debt. My back of envelope is that Coin + eco = to the debt (1bn). And whatever the equity market cap is is what one pays for Redbox. So right now one can buy Redbox for about 1.3bn. In my opinion it's worth at least $2bn. But it might be worth materially more depending on how the consumer reacts to the next "good slate" period. Link to comment Share on other sites More sharing options...
frommi Posted November 28, 2014 Share Posted November 28, 2014 For all the greedy ones out there .. why are you so greedy now ... I think similar discussions happened earlier in the year when we were at around the same price level (a bit higher even?). Yes, we now see some pricing power (hopefully demonstrated & maintained without too much of a drop in traffic) ... but that was part of the theory for a while, no? Is it just that you now happened to look at the stock or is there something else that excites you? Thanks - C. I had an eye on this since Mecham has started building a position and ignored the possibility of a price increase and its potential effect on FCF/EBITDA. (my fault, but i don`t think the market has really grasped the potential earnings increase yet.) And after the price increase it looks even cheaper than at 51$ for me. (And stupid little me looked too long at the chart and a possible price decline to around 45$, but that is off the table now.) Link to comment Share on other sites More sharing options...
Arden Posted November 28, 2014 Share Posted November 28, 2014 I have been looking for any rage on twitter about the price increases and I see almost no negative feedback about Redbox like there was with Netfilx. Actually, I'm seeing mostly good stuff, which as an investor in banks and other unpopular companies, is a refreshing change. Twitter I've been also looking on Google trends for search traffic: Google Trends More people in the US are searching for "Redbox" than are searching for "rent game", "rent dvd" and "Blu ray" combined. It is literally more searched for than all the things it does put together, how is that for monopolistic pricing power? and there doesn't even seem to be any rage. Link to comment Share on other sites More sharing options...
kab60 Posted November 28, 2014 Share Posted November 28, 2014 I have been looking for any rage on twitter about the price increases and I see almost no negative feedback about Redbox like there was with Netfilx. Actually, I'm seeing mostly good stuff, which as an investor in banks and other unpopular companies, is a refreshing change. Twitter I've been also looking on Google trends for search traffic: Google Trends More people in the US are searching for "Redbox" than are searching for "rent game", "rent dvd" and "Blu ray" combined. It is literally more searched for than all the things it does put together, how is that for monopolistic pricing power? and there doesn't even seem to be any rage. When you check their FB-page, I think it's obvious that the reactions are pretty mixed. Some people don't seem to give a damn, others say it'll keep them for using Redbox. I don't think it'll get there, people will probably get over it pretty quick, but I'm more worried about the longterm perspectives. Why isn't this just a melting icecube? I don't see a lot of people listening to CD's anymore. I'm from Denmark, so I'm not too familiar with the broadband coverage and data plans in the States, but I think I read earlier in the thread, that even with a capped data plan watching one whole movie on Netflix is probably less than 1 pct. of the monthy usage limit (depending on the plan, obviously). I like the cashflows, the light Capital business model, the agressive sharebuyback, I'm just not convinced that it'll be around for a whole lot of time. What makes the greedy ones on this board so convinced? Link to comment Share on other sites More sharing options...
frommi Posted November 28, 2014 Share Posted November 28, 2014 Of course Redbox is a melting icecube, but the question is how long it takes to melt it away. The market and the shorts say it happens very soon (<3 years), but i don`t think it will happen that fast when you look at their recent past. When EBITDA from redbox shrinks every year by 10-20% this company is a steal at these prices. (Or i am too stupid to do the math.) This years numbers are a bit weak not only because people are looking more films online but also because of the weak box office release in the summer which can mainly be attributed to the world championchip in soccer. I watched a lot of movies in october and november so this quarter is probably a lot better than the last. I am really sad that i don`t have access to Redbox in germany since i am pretty sure that i would use it regularly, not only because looking new cinema films on ITunes/Netflix/Amazon is expensive but also because you can get the newest films on DVD first. As long as the studios have their release windows set up that way, Redbox has a big advantage. I am pretty sure that as long as the release windows stay that way revenue/EBITDA will not decrease faster than i said above. I am so bullish because i am sure that the next year is enough to kill every shorty in this stock. You can make scenarios with the price increase but since they have made tests i don`t think that less people will use their service because of the price increase, so you can expect that a lot of the price increase will fall to the bottom line. The very optimistic view would be that the complete 25% of 2 billion fall through to FCF, which would be a 500 million $ increase in FCF, which would mean an FCF of around 780 million $. But even the not so optimistic view of a 15% increase in revenue means 300 million $ more FCF so around 580 million $. Or you take yadas numbers of 100-150 million more and land around 420 million FCF $. So around 420-780 million FCF in just one year on a marketcap of 1300 million with 45% of the float sold short (1 week back the calculation was just 250-280 million FCF). I can`t help but see this skyrocket especially when the price advances over the top at around 75$. I am pretty sure that a lot of short sellers have stops in the market at that number. And for the long term view you have coinstar which gives a good terminal value and a floor to pay down debt and ecoATM which has a huge potential for free. But who knows maybe i am wrong or have a big flaw in my logic, that would not be the first time. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted November 28, 2014 Share Posted November 28, 2014 The shorts have been predicting a quickly melting ice cube for years. I just read a short article the other day from 2011 predicting Redbox's death within three years. Three years later and they're doing just fine and shorts are still saying the same thing. Link to comment Share on other sites More sharing options...
yadayada Posted November 28, 2014 Share Posted November 28, 2014 read this thread imo, there are good reasons why redbox will likely melt slowly in a worst case scenario. They can basicly undercut on price with new content through a loophole of the law. This is not possible with streaming, but renting out discs is the only part of the value chain movie studio's cannot control. That is why they are still alive. And as long as Redbox can buy dvd's on the open market, they have little leverage on redbox. And the kiosks act like free billboard advertising. They can lose like 50% of revenue before losing money without removing any kiosks. And frommi, I would take a look at kickass.to ;) . And use this program to download them http://www.qbittorrent.org/ One of the few bittorent clients without any malware. that seems to be the biggest risk. But I think at some point in the future the market will realize earning potential and this gets a big rerating. And then the shorts will be squeezed out for a quick rise in stock price. With buybacks adding more fuel to the fire before that happens. Another reason to not like this is that management can throw away a lot of redbox money on new ventures. For example ecoatm could fail, and then bleed money for years. And then their sample business could fail as well, and then you have to put a big discount on cashflow streams. This has happened in the past. Link to comment Share on other sites More sharing options...
frommi Posted November 29, 2014 Share Posted November 29, 2014 And frommi, I would take a look at kickass.to ;) . Thanks, but i am not interested in illegal activity. :) Link to comment Share on other sites More sharing options...
frommi Posted November 30, 2014 Share Posted November 30, 2014 Just noticed that i forgot to subtract taxes in my calculation, so in the most optimistic scenario its 630 million FCF. 15% more revenue are than 490 million FCF, that comes closer now to yadas numbers. But still around 2-3 years to buy back the complete marketcap. Link to comment Share on other sites More sharing options...
kab60 Posted December 1, 2014 Share Posted December 1, 2014 Thanks for alot of great input in regards to the melting icecube. It's on my watch/research-list, but I'm still not comfortable plunging money into it. I'm cheap, and I'd like it to get (even) cheaper. Link to comment Share on other sites More sharing options...
intensityjp Posted December 1, 2014 Share Posted December 1, 2014 Redbox raised prices in Nov-ish 2011 from 1 to 1.20 for standard dvds. If you track per kiosk revenue from 2010 till the latest quarter, you find that its been in the same range of approx. 40k per year per kiosk. The 20% increase in 2011 led to a bump in Q1 2012 but those gains melted away the following quarter on a per kiosk basis. The latest quarter has shown the lowest per kiosk revenue since 2010. Isn't all the speculation on a huge bump in revenue and consequently FCF overly optimistic. If the last price increase is any indicator, it more likely only help redbox maintain its per kiosk revenue going forward. Thanks to the board for this great idea btw! Link to comment Share on other sites More sharing options...
yadayada Posted December 1, 2014 Share Posted December 1, 2014 net revenue per rental is up about 11% since 2011. Look in page 26 of their 10k. Also they added a bunch of kiosks where it was really busy. So that could dillute your numbers a bit. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now