Coinstar Rakes In Green With Redbox DVD Machines

By Sham Gad | February 17, 2010 AAA

One might not think that a company that offers to count coins for people could turn that into an extremely lucrative enterprise. But that's exactly what Coinstar (Nasdaq: CSTR) did in 2009. For the year, the company revenues were $1.1 billion, surpassing the $1 billion mark for the first time in the company's history. And the 2009 revenue figure was 50% above 2008 sales. Net income per share for Coinstar was $1.83 in 2009 versus 50 cents in 2008.

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Revolutionizing Convenience
Coinstar was founded in 1992 with a simple idea: help consumers turn coins into cash. Since those humble beginnings, the company's self-serve machines have mushroomed all over the U.S. Most people have likely seen, if not used, a Coinstar product without ever realizing it. While the company's first core product was the green coin-counting machines, it has since added the popular Redbox DVD rental kiosk to its lineup. Coinstar's machines can be found in more than 95,000 locations including supermarkets, drugstores, convenience stores and restaurants.

The company's machines can be found in local businesses all the way up to names like Kroger (NYSE: KR). Odds are if you visit a Kroger, you can find someone dumping a huge jar of coins into a Coinstar machine and getting cash in return. Coinstar charges a small convenience fee, and everyone is better off.

Taking DVDs By Storm
While Coinstar also has financial services machines that allow customers to transfer money and purchase prepaid debit cards, its Redbox DVD kiosks are turning the movie rental business upside down and propelling the company's impressive growth. Of the $1.1 billion in 2009 revenues, $774 million came from DVD rentals. This DVD revenue was 99% higher than 2008 DVD revenue. Consider that in the few short years that these DVD kiosks have been around, they are already generating approximately 15% of the revenues that Blockbuster (NYSE: BBI) is generating. And while Blockbuster continues to lose money, Coinstar is minting it from its DVD kiosks. (For more, check out Removing The Barriers To Successful Investing.)

The DVD Redbox concept is innovative and simple. Located in high-traffic retail locations like major supermarkets, customers can rent a DVD for $1 a day. Each machine has around 500 to 600 discs and an average of 200 titles including the newest releases. Customers simply swipe a credit card, choose their title and return it when due. The incredibly attractive price, along with the convenient locations, make these Redboxes a very serious threat to the movie rental industry. Even Netflix (Nasdaq: NFLX), which brought the brick-and-mortar DVD rental business to its knees, now has to worry about competition from Coinstar's product. While the convenience of unlimited movies delivered directly to your mailbox still has its benefits, the impressive growth in these DVD kiosks cannot be ignored.

One To Watch
Coinstar is a company to watch. Management is forecasting revenue of nearly $1.4 billion in 2010, or more than 30% top-line growth. With only 19,000 DVD Redboxes, there is plenty of room to grow. (For related reading, check out 3 Secrets Of Successful Companies.)

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