Have you noticed Warren Buffett is buying more newspapers, this so called dying industry? Well, what other so called dying industries are out there that many think are becoming obsolete but will instead actually survive and thrive? Is there a company that makes only land line phones or VCRs? No, really, I’m not taking about certain dead industries, but ones who still have some life in them. Might those Red Box kiosks have a long term value that’s unexpected?
The company that owns those kiosks is Outerwall Inc (OUTR), formally called Coinstar, since they also operate those coin exchange machines, but the main source of growth for the company is via the Red Box movie rental kiosks you see at grocery stores. But while it seems like Netflix, iTunes, Hulu and YouTube might just kill the DVD rental business at some point, that some point might be five or ten years away and Outerwall might be worth a look at a certain price. That was the key with Buffett’s purchasing of newspapers, they’d become so cheap it was worth buying them.
In part, Red Box will succeed because the movie executives don’t want to become beholden to Netflix and the like. And Netflix doesn’t want to succumb to the movie executives and pay pile of money for the lastest movies that come out. It will take some time for Netflix and the studios work out a system where they’re both happy. And this is why those Red Box kiosks will stick around, people still want to pay around a $1.25 for new movies rather than the $4 at iTunes. Netflix, just doesn’t get the newest movies right away. Moreover, who’s to say RedBox can share in the movie pie when they do transition to focusing more on streaming – nobody said Netflix could do it, why can’t RedBox?
And while Outerwall also started a streaming online service in connection with Verizon, I’d argue that their kiosks is the reason to own the stock. Yes, that doesn’t seem right, what with online streaming the supposed growth area, but the kiosks are everywhere and very easy to use. And again, you get the latest movies for just over a buck.
Jana Partners, run by activist investor Barry Rosenstein, now has a 14 percent stake in the company, which it bought at around $50 a share, the stock is now up near $70. The question is when to buy the stock: has it run up too much since Jana Partners got in? Perhaps. The stock also has a huge short interest, betting that Outerwall’s business is a dying one.
However, Outerwall has also started another kiosks business called, ecoATM, an e-waste kiosk where people can recycle old phones, mp3s, tablets and more. To me, it seems like this company knows how to create kiosks centered around trends. I’d imagine that have more in the works.
Overall, if it’s not movies, it seems like Outerwall is very savvy at selling stuff out of boxes next to stores. That’s a trend that’s not going to dye even if the Amazon is selling anything and everything over the Internet, there’s a market for getting what you want right away, and since drones aren’t here yet, these kiosks will still be necessary.
The trend these days is that brands don’t need as many retail stores in the malls, so it’s in Outerwall’s favor to have these kiosks – it’s not like they have huge stores and spend their money on real estate space. They are a streamlined business in the age of online shopping.
Interestingly, RedBox also has a lot of data to use to gauge where they should expand and place new kiosks. And again, the costs to put in a new kiosk are much less expensive than put in a new Blockbuster retail store, years ago. Along with data based on zip codes, RedBox always has a huge number of emails of customers to market their DVD system to.
And international growth is coming for Red Box too, as they look to expand in Canada and other countries surely to follow.
Lastly, it doesn’t have to be just Netflix, or just Hulu, why can’t RedBox survive along with all the online movie options? Redbox has said that 20% over RedBox users have a Netflix account as well.
I like their new company name, Outerwall, just outside stores is where they’re going to succeed. Who knows, maybe even Warren Buffett will buy this dying industry too.