Coinstar (CSTR)

Coinstar (CSTR), operator of Coinstar kiosks that convert your spare change into cash for a fee and located at many popular retail locations, reported what appears to be an excellent 4th quarter (read CSTR Earnings Release).

I wonder if people are more likely to convert any spare change they have into cash when times are tough. Or are they more likely to roll it themselves to avoid Coinstar’s 8.9% fee?

Another driver of the strong quarter appears to be their interest in Red Box, the in-store $1 DVD rental kiosk. On Thursday, they announced they’ll be buying out McDonald’s and other owners of Red Box to attain a 100% stake.

The stock has been on fire - up about 75% in the last 3 months.

I’m having a tough time valuing Coinstar for a variety of accounting reasons but the stock is interesting to me and I’m going to keep working on it.

Two of Coinstar's major businesses are the coin sorting machines and RedBox. When money gets tight people start lugging in those penny jars for grocery and gas money. I don't see the proliferation of free coin counters at banks as a big deal. First of all who the heck still goes into a bank? Second my belief is that people are looking to spend that money not put it in the bank. Therefore they are going to convert at the grocery store, Wal-Mart or Target.

Redbox is $1 a night. Its simple with no subscription. As people continue to look for places to cut expenses those Netflix subscriptions are going to be towards the top of the list. People will still want to see movies though and Redbox is a well-thought out solution. The fact that it is expanding its presence beyond McDonald's and into Walgreens and Wal-Mart is very encouraging.