I reviewed Coinstar's (NASDAQ:CSTR) first-quarter earnings with some trepidation. During the quarter, the company grew revenue 12% to $43 million from a year earlier. Net income grew 17% to $4.6 million, but Coinstar decided to defer $600,000 of marketing expenses to the second quarter. Otherwise, earnings growth would have been flat compared with a year earlier. The spare-change-collecting company also signed a multiyear agreement with Albertsons (NYSE:ABS). It plans to have machines in all of Albertsons' grocery stores and select drug stores in early 2005.

It's clear that there is plenty of room yet for Coinstar to expand its locations, so it could continue to grow revenue for some time. However, in the long term, it seems to me that it will already be occupying the best locations and will experience reduced margins on each additional machine to the point that the market becomes saturated.

To keep growing, perhaps what the company needs to do is figure out new configurations for its core product. Say, for example, a more refined and quieter version to put in banking centers, a version that comes built into ATMs, or better yet, one of those toll-booth type coin catchers attached to the side of a McDonald's (NYSE:MCD) drive-through window. That way, every construction worker, teenager, and general slob like myself could toss in a handful of whatever comes out of the ashtray or between the seats -- simultaneously paying for lunch and cleaning out the car.

So yes, there are still opportunities out there for the company, but I don't think it's with the prepaid cards Coinstar is pushing so hard. With the recent acquisition of CellCards of Illinois, Coinstar is moving from a market with nearly zero competition to a highly competitive one.

Want a different opinion on Coinstar? Bill Mann recommended it for Motley Fool Hidden Gems in the November 2003 issue. Take a free, no-obligation trial to learn more.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.