CSTR - Coinstar

[yadayada]

I think the problem is, we have a lack of data here. 2013 was skewed by closing o f blockbuster. So if the market sees redbox revenue being stable for a few years, or even up on a strong release slate, by 2016 it should be rerated when the market finds out the business is not in terminal decline and doesn't need closing of competitor to keep revenue stable. I guess time will tell who is right.

 

Note that summer box office in 2014 was down 15% from 2013, and a 7 year low, that should have a big effect on Q3 and Q4. Yet Redbox still had their all time best week ending 2015 despite a 25% price increase.

http://www.reviewjournal.com/entertainment/movies/5-things-take-weak-summer-box-office

[krazeenyc]

I think the problem is, we have a lack of data here. 2013 was skewed by closing o f blockbuster. So if the market sees redbox revenue being stable for a few years, or even up on a strong release slate, by 2016 it should be rerated when the market finds out the business is not in terminal decline and doesn't need closing of competitor to keep revenue stable. I guess time will tell who is right.

 

Note that summer box office in 2014 was down 15% from 2013, and a 7 year low, that should have a big effect on Q3 and Q4. Yet Redbox still had their all time best week ending 2015 despite a 25% price increase.

http://www.reviewjournal.com/entertainment/movies/5-things-take-weak-summer-box-office

 

Q4 2014 DVD release on RedBox was much stronger than Q4 of 2014 FWIW.

 

2013 Q4 RedBox Release

 

$100MM

This is the End

The Croods ($187MM)

Hanover 3

Grownups 2

Pacific Rim

The Heat

The Wolverine

 

$200MM

Monster University

Man of Steel

 

 

2014 Q4 2014 RedBox Release

 

$100MM

Fault in our Stars

Neighbors

Edge of Tomorrow

22 Jump Street ($191 MM)

How to Train Your Dragon ($171 MM)

Teenage Mutant Ninja Turtles ($191MM)

Equalizer

 

$200MM

Godzilla

Maleficent

X-Men

Planet of the Apes

 

$300MM

Guardians of the Galaxy

[thefatbaboon]

I think the problem is, we have a lack of data here. 2013 was skewed by closing o f blockbuster. So if the market sees redbox revenue being stable for a few years, or even up on a strong release slate, by 2016 it should be rerated when the market finds out the business is not in terminal decline and doesn't need closing of competitor to keep revenue stable. I guess time will tell who is right.

 

Note that summer box office in 2014 was down 15% from 2013, and a 7 year low, that should have a big effect on Q3 and Q4. Yet Redbox still had their all time best week ending 2015 despite a 25% price increase.

http://www.reviewjournal.com/entertainment/movies/5-things-take-weak-summer-box-office

 

Q4 2014 DVD release on RedBox was much stronger than Q4 of 2014 FWIW.

 

2013 Q4 RedBox Release

 

$100MM

This is the End

The Croods ($187MM)

Hanover 3

Grownups 2

Pacific Rim

The Heat

The Wolverine

 

$200MM

Monster University

Man of Steel

 

 

2014 Q4 2014 RedBox Release

 

$100MM

Fault in our Stars

Neighbors

Edge of Tomorrow

22 Jump Street ($191 MM)

How to Train Your Dragon ($171 MM)

Teenage Mutant Ninja Turtles ($191MM)

Equalizer

 

$200MM

Godzilla

Maleficent

X-Men

Planet of the Apes

 

$300MM

Guardians of the Galaxy

 

That's exactly what I was trying to say.  I don't know why yada cares whats in the theaters, it's not relevant until released to DVD.

[yadayada]

yeah that is a good point. And you could also argue that if a box office is very strong, people will not spend anymore of it on dvd and bluray rentals? I guess we will see in the next few quarters.

[frommi]

The reason that i think that the user count is the best approximation for the real decline rate is the cyclicity of the release schedule.

But in the end, fair value is >100$ with a decline rate <5% and around the current price >10%, so in 2 years and a decline rate <5% this is a double, if not its just a return of 10-20%. I can think of worse investments.

[yadayada]

@krazee: what if you look at Q2 and Q3? If Q2 and Q3 dvd new releases are really weak, that probably affets Q3 and Q4 no? Despite a stronger Q4?

[krazeenyc]

@krazee: what if you look at Q2 and Q3? If Q2 and Q3 dvd new releases are really weak, that probably affets Q3 and Q4 no? Despite a stronger Q4?

 

Q2 release quality is unlikely to have much of an impact.  If there was a really strong release in late September of 2013 vs late September 2014 it might have a small impact as those rentals flow into the beginning of Q4.  For a mainstream product like RedBox the first couple weeks of a release generally is where much of the rental revenue comes in. 

 

there are always exceptions where a specific lousy title does really good in the rental market or a blockbuster doesn't do great. But that's not the general rule.

[thefatbaboon]

The reason that i think that the user count is the best approximation for the real decline rate is the cyclicity of the release schedule.

But in the end, fair value is >100$ with a decline rate <5% and around the current price >10%, so in 2 years and a decline rate <5% this is a double, if not its just a return of 10-20%. I can think of worse investments.

 

Wouldn't you be worried about using a number that doesn't take any account of intensity?  Given the other data we have, together with the decline rates you have provided for cards, it's clear the cards lost tend to belong to better than average consumers.

 

 

[yadayada]

@krazee: what if you look at Q2 and Q3? If Q2 and Q3 dvd new releases are really weak, that probably affets Q3 and Q4 no? Despite a stronger Q4?

 

Q2 release quality is unlikely to have much of an impact.  If there was a really strong release in late September of 2013 vs late September 2014 it might have a small impact as those rentals flow into the beginning of Q4.  For a mainstream product like RedBox the first couple weeks of a release generally is where much of the rental revenue comes in. 

 

there are always exceptions where a specific lousy title does really good in the rental market or a blockbuster doesn't do great. But that's not the general rule.

http://www.boxofficemojo.com/yearly/?view2=ytdcompare&compare=Summer&p=.htm

 

Check this out, it seems rentals seem to correlate with how well previous few months did in box office. 2013 did better then 2012, and rentals were up 13% vs kiosks only a few %. 2014 summer box office was aweful and Q3 was aweful.

 

So if this summer box office does well, Q3 should do well too.

[frommi]

Wouldn't you be worried about using a number that doesn't take any account of intensity?

 

I don`t think a broad user base uses some times streaming and some times Redbox, but maybe i am wrong on this. And even if i am wrong this is the only number that doesn`t fluctuate wildly with the number of titles in a quarter, so it should give a good picture of the overall trend.

[krazeenyc]

@krazee: what if you look at Q2 and Q3? If Q2 and Q3 dvd new releases are really weak, that probably affets Q3 and Q4 no? Despite a stronger Q4?

 

Q2 release quality is unlikely to have much of an impact.  If there was a really strong release in late September of 2013 vs late September 2014 it might have a small impact as those rentals flow into the beginning of Q4.  For a mainstream product like RedBox the first couple weeks of a release generally is where much of the rental revenue comes in. 

 

there are always exceptions where a specific lousy title does really good in the rental market or a blockbuster doesn't do great. But that's not the general rule.

http://www.boxofficemojo.com/yearly/?view2=ytdcompare&compare=Summer&p=.htm

 

Check this out, it seems rentals seem to correlate with how well previous few months did in box office. 2013 did better then 2012, and rentals were up 13% vs kiosks only a few %. 2014 summer box office was aweful and Q3 was aweful.

 

So if this summer box office does well, Q3 should do well too.

 

In my opinion Q3 2014 was terrible b/c the slate included only following hits:

 

$100MM

Divergent, Noah, Rio 2, 300 (2),

$200MM

Spiderman, Capitain America, Transformers (this title actually didn't hit until 9/30 -- which likely helped Q4)

 

For Your reference:

Q3 2013 had:

$100MM

Gatsby,

Olympus has Fallen ($98MM)

GI JOE

Identity Thief

$200MM

Star Trek

World War Z

$400MM

Iron Man 3

[krazeenyc]

I thought it was a good idea for them to hike the price.  The one thing I didn't really consider is -- what is the price point at which a person is likely to go out of his way to return a blu-ray/dvd. Maybe at $1/$1.20 a day, it's just not worth driving back to your local CVS. But at a certain price point -- it might motivate the individual to make sure he returns it within 24 hours -- breaching this price point is bad, imo.

 

In a weird way, the price hike, might actually make Redbox lose its (lazier) least price conscious customers. They may choose instead to pay $5-6 to stream rather than keep a dvd for 2-3 days.

[yadayada]

couldn't they simply decrease late fees then?

[frommi]

I thought it was a good idea for them to hike the price.  The one thing I didn't really consider is -- what is the price point at which a person is likely to go out of his way to return a blu-ray/dvd. Maybe at $1/$1.20 a day, it's just not worth driving back to your local CVS. But at a certain price point -- it might motivate the individual to make sure he returns it within 24 hours -- breaching this price point is bad, imo.

 

In a weird way, the price hike, might actually make Redbox lose its (lazier) least price conscious customers. They may choose instead to pay $5-6 to stream rather than keep a dvd for 2-3 days.

 

The 2 day rentals probably come from weekends where you have no choice to return the discs after watching. If i would be able to use redbox i would just pick up discs while shopping for the weekend and then return it the next possible day while driving by a location on my way to/from work. And i am pretty sure normal rational acting humans do it that way, regardless of the price per day. :D

[yadayada]

oh wait they only paid 350m$ for the entire thing.

 

So they paid 350m$ for Ecoatm. Which still seems high for something that is largely unproven. They need to invest several 100m$ themselves for probably only about a 15% return on capital IF everything goes to plan.

 

Maybe that is why the CEO got fired?

[frommi]

oh wait they only paid 350m$ for the entire thing.

 

So they paid 350m$ for Ecoatm. Which still seems high for something that is largely unproven. They need to invest several 100m$ themselves for probably only about a 15% return on capital IF everything goes to plan.

 

Maybe that is why the CEO got fired?

 

Yes, thats for me the most plausible reason. Its possible that it was his baby and they now want someone who is not biased by previous decisions.

[rich379]

I am a bit ashamed to post this "newbie" question... But can someone explain to me if there will be any adjustments to existing OUTR call option contracts given the new dividend distribution policy? I had previously assumed yes, but the little information I have found so far today seems to indicate not (does not qualify as a "special dividend"), but it seems that option contract adjustment policies has evolved over the years, so I am unsure if this information is still applicable.

 

Still learning here :-) And sizing my options contracts accordingly....

 

Thanks for your input.

 

Rich379

[gfp]

No adjustment for new regular dividends.

 

I am a bit ashamed to post this "newbie" question... But can someone explain to me if there will be any adjustments to existing OUTR call option contracts given the new dividend distribution policy? I had previously assumed yes, but the little information I have found so far today seems to indicate not (does not qualify as a "special dividend"), but it seems that option contract adjustment policies has evolved over the years, so I am unsure if this information is still applicable.

 

Still learning here :-) And sizing my options contracts accordingly....

 

Thanks for your input.

 

Rich379

[100 Shares]

oh wait they only paid 350m$ for the entire thing.

 

So they paid 350m$ for Ecoatm. Which still seems high for something that is largely unproven. They need to invest several 100m$ themselves for probably only about a 15% return on capital IF everything goes to plan.

 

Maybe that is why the CEO got fired?

 

Yes, thats for me the most plausible reason. Its possible that it was his baby and they now want someone who is not biased by previous decisions.

 

Kind of amazing if you think about it. They spent $350M in cash for EcoATM, they have had net losses of $19M in EBITDA in New Ventures since acquiring EcoATM, and about $65M in CAPEX for new ventures bringing the total cash burn to ~$435M. (Side note, looking back at the press release in 2013 when they acquired it, they said EcoATM would be profitable in 2014 and accretive to EPS, HA!)

 

Looking at the financials they presented at the Investor Day last year. At maturity in the USat the high range of guidance , 5000 machines, 120K in revenue and 25% EBITDA margins works out to 150M in EBITDA per year (low end of guidance results in 100M). If they can achieve that it is a acceptable acquisition, just seems like a lot of risk. They are planning 600-1200 adds in 2015 so itll still be another 2-3 years before they hit 5000, so who knows what will happen along the way. On the positive side, the management hasn't been shy about shutting down unsuccessful operations with many of the new ventures cut off about 1.5 years ago, Redbox Instant being terminated, and Redbox Canada just being shut down. It'll be a very costly mistake, but I have confidence that if EcoATM turns out to be a dud, then they will get rid of it. But I honestly do believe its too early to tell and hence thats why they haven't given much info. The ramp time for a machine is 6-8 months and the revenue is on a one month lag. With them growing the install base by 25%+ per quarter, the consolidated total numbers really don't mean anything. They are breaking EcoATM into its own segment next year and it will no longer be considered a new venture, so hopefully more numbers will be available for SSS and machines that have been in service for 1 year or more. I bought into OUTR after EcoATM was already acquired, so I saw it as a sunk cost, but had I been a shareholder at the time, I would have been displeased with the purchase price and even just the fact that they purchased it.

 

If you look at 2014 results, FCF was 240M. Without EcoATM increasing CAPEX and decreasing Operating Cash flow, it would have been about 295M. They are really sinking a lot of cash into this...

 

Whats really amazing is that the 435M sunk into EcoATM and the $542M in share repurchases in 2014 could have instead been a $975M special dividend on a market cap of $1200M right now.

[yadayada]

some of that is Sampleit as well. I think sampleit could be a good idea. I wonder why they are waiting so long to roll that out? It has been running on a small scale for 2-3 years now? It seems if that is a success someday, that will at least be a few years away.

[100 Shares]

SampleIt ended Q3 2014 with 40 kiosks and then it ended Q4 with 90. That's a significant ramp. Maybe the rollout is imminent.

[yadayada]

Do they own that? Or is that going to be another overpriced buyout.

[rich379]

Thanks!

I am realizing the added risk of buying long dated call options on stocks of cash rich companies with small or no dividends..

The only other call options I have bought to date are on Berkshire. Think I am safe in this respect for the time being.

Rich379

 

No adjustment for new regular dividends.

 

I am a bit ashamed to post this "newbie" question... But can someone explain to me if there will be any adjustments to existing OUTR call option contracts given the new dividend distribution policy? I had previously assumed yes, but the little information I have found so far today seems to indicate not (does not qualify as a "special dividend"), but it seems that option contract adjustment policies has evolved over the years, so I am unsure if this information is still applicable.

 

Still learning here :-) And sizing my options contracts accordingly....

 

Thanks for your input.

 

Rich379

[thefatbaboon]

oh wait they only paid 350m$ for the entire thing.

 

So they paid 350m$ for Ecoatm. Which still seems high for something that is largely unproven. They need to invest several 100m$ themselves for probably only about a 15% return on capital IF everything goes to plan.

 

Maybe that is why the CEO got fired?

 

Yes, thats for me the most plausible reason. Its possible that it was his baby and they now want someone who is not biased by previous decisions.

 

Kind of amazing if you think about it. They spent $350M in cash for EcoATM, they have had net losses of $19M in EBITDA in New Ventures since acquiring EcoATM, and about $65M in CAPEX for new ventures bringing the total cash burn to ~$435M. (Side note, looking back at the press release in 2013 when they acquired it, they said EcoATM would be profitable in 2014 and accretive to EPS, HA!)

 

Looking at the financials they presented at the Investor Day last year. At maturity in the USat the high range of guidance , 5000 machines, 120K in revenue and 25% EBITDA margins works out to 150M in EBITDA per year (low end of guidance results in 100M). If they can achieve that it is a acceptable acquisition, just seems like a lot of risk. They are planning 600-1200 adds in 2015 so itll still be another 2-3 years before they hit 5000, so who knows what will happen along the way. On the positive side, the management hasn't been shy about shutting down unsuccessful operations with many of the new ventures cut off about 1.5 years ago, Redbox Instant being terminated, and Redbox Canada just being shut down. It'll be a very costly mistake, but I have confidence that if EcoATM turns out to be a dud, then they will get rid of it. But I honestly do believe its too early to tell and hence thats why they haven't given much info. The ramp time for a machine is 6-8 months and the revenue is on a one month lag. With them growing the install base by 25%+ per quarter, the consolidated total numbers really don't mean anything. They are breaking EcoATM into its own segment next year and it will no longer be considered a new venture, so hopefully more numbers will be available for SSS and machines that have been in service for 1 year or more. I bought into OUTR after EcoATM was already acquired, so I saw it as a sunk cost, but had I been a shareholder at the time, I would have been displeased with the purchase price and even just the fact that they purchased it.

 

If you look at 2014 results, FCF was 240M. Without EcoATM increasing CAPEX and decreasing Operating Cash flow, it would have been about 295M. They are really sinking a lot of cash into this...

 

Whats really amazing is that the 435M sunk into EcoATM and the $542M in share repurchases in 2014 could have instead been a $975M special dividend on a market cap of $1200M right now.

 

Yep,  very reckless.  More I think about it the more i find myself agreeing with yada and frommi that the eco performance is the primary reason for the CEO firing. 

 

 

[DTEJD1997]

Hey all:

 

The Google is your friend!

 

Type in "EcoATM" scam, and the first few pages are people disgruntled with the low, low, low prices paid for relatively new electronics.  The 2nd page is where things start to get interesting...

 

Apparently, these kiosks are magnets for mayhem & criminality.  Amazingly, the machines are easily duped by criminals!  How could this possibly happen?

 

One of the places where these machines were installed were mall food courts.  "WERE" is the operative word.  A rash of robberies & thefts followed the installation of one of these machines:

 

https://hiddenbaltimore.wordpress.com/2014/02/17/kiosks-benefit-local-crime/

 

"Baltimore County officials say that the kiosks are providing criminals with a way of disposing stolen electronic devices easily and for untraceable cash.  Baltimore County Executive Kevin Kamenetz says the he plans to pass a bill that would ban the kiosks within Baltimore County.  Baltimore City banned the kiosks in Sept. 2013.

 

Elise Armacost, the director of Media Relations for the Baltimore County Police Department, said that the ecoATM kiosks contribute to the increase in crime in the county."

 

Perhaps this had something to do with the ouster of the CEO?

 

Could there be a charge off coming in the future?

 

I doubt Baltimore county has had a unique experience with these things...Could you imagine them installed in the Detroit area?