Coinstar (NASDAQ:OUTR) found a profitable niche in Redbox, but DVDs won't be around forever. Besides this obvious risk in its business, where else could things go wrong?
To help investors answer this question, along with whether Coinstar is a good potential investment, we've put together a new premium report on the company. For a taste of what's inside the report, read on about the risks Coinstar faces.
Even though Coinstar is trying to prepare to pivot from a decreasing disc rental business, it may not act or execute fast or well enough to make up for a doomed industry. The unknown of how fast consumers will change to disc-free lives should be a factor considered by any potential investor. This also makes international expansion of its Redbox kiosks in Canada somewhat questionable, as the company could invest heavily in machines as demand wanes. While timing worked out well in America, it's no slam-dunk today -- especially so soon after Canada stopped making any more pennies.
Coinstar and Verizon's answer to this problem, Redbox Instant, could suffer from the same issues that Netflix (NASDAQ:NFLX) has experienced. Digital content can be expensive, and as Netflix demonstrated when it tried to raise prices on customers, passing on costs isn't always an option. To reduce reliance on content providers, Netflix is working to develop its own original content, and will be exclusively streaming new episodes of the cult hit Arrested Development in 2013. Redbox and Verizon must be ready to handle issues that haven't come up with their experience in physical rentals, such as digital rights and streaming costs.
Coinstar's side projects also may be less lucrative than they seem. Even though Coinstar could place up to 15,000 Rubi coffee kiosks, that target number would only produce $200 million in revenue according to one analyst who estimates $12,000 a year per kiosk. Of Coinstar's trailing-12-month revenue of about $2 billion, that potential coffee revenue only amounts to 10%. Additionally, coffee is an incredibly crowded space where consumers value taste, and there can be more quality control issues than with non-perishable DVDs.
More in-depth analysis available
That was just a sample of what's included in the new premium report on Coinstar. If you're considering an investment in the kiosk king, make sure to grab your copy of the report today by clicking here.
Fool contributor Dan Newman has no positions in the stocks mentioned above. The Motley Fool owns shares of Netflix. Motley Fool newsletter services recommend Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.