Friday, February 13, 2009


This is probably months away but Coinstar is setting up to be a wonderful short.

The company, in case you didn't know, is in two businesses. Primary is the coin counting business, where you dump in your coins and get a receipt for dollars, minus a 9% vig. (That is a very good business model). The second business, and the growth driver of late, is its roughly 50% ownership in those red self serve DVD rental machines that you have seen in grocery stores and McDonald's.

Why the short? The coin counting business is begging for competition. It has been free for a while at Commerce Bank (recently acquired by TD), though I'm not sure if those are Coinstar boxes or not. If they are, it's got to be very low margin.

The timing of the short could very well be predicated on the IPO of the DVD business - announced last year then pulled. Between Netflix, torrents and cable on demand, leaving the house to get a movie has been an endangered species for a while. I'm not sure whether they'll ever get that IPO done but the real key to my negativity is that I heard an analyst say yesterday that the DVD franchise accounts for more than the overall company's valuation. If that's true it's bad all around.

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