Coinstar (NASDAQ:CSTR) is most known for its coin-counting kiosks in grocery stores. A customer dump coins into a coinstar machine and paper money instead. The company typically charges an 8.9% fee on all coins processed. Although coin-counting is Coinstar's most established business, with their first machines installed in 1992, the company generates most of its revenue from its self-service DVD rental businesses. The business is similar to its coin-counting business, in that customers can rent or buy DVDs from DVD kiosk located places like grocery stores. Coinstar also has a smaller money transfer business that it operates in a similar way.
Despite the struggling economy, Coinstar's coin-counting business has remained stable and its DVD business has grown tremendously. In 2009, the company's net sales increased by 50% and it's net income nearly tripled. However, the DVD rental market is very competitive, especially with the emergence of online streaming rentals. One of the company's competitors, Netflix (NFLX) has as option that allow customers to rent DVDs by streaming it to their computers or TV, something that is more convenient for most people.
Coinstar maintains contracts to place their products in retail outlets, most notably Wal-Mart Stores (WMT), Walgreen Company (WAG), and McDonald's (MCD). These three customers alone account for 40% of Coinstar's revenue. Coinstar's contract with Wal-Mart is very one-sided. The giant retailer has the option of canceling or revising the contract at any time.
The company is organized into two geographical segments. The North America segment includes business from North America, Canada, and Mexico. The International segment is composed of the United Kingdom and other European countries, with the UK providing the majority of international revenue. Over 90% of revenue comes from the United States.
Coinstar operates in four main business segments:
Over half of the coins processed through Coinstar machines every year are pennies. However, there is talk in Congress of removing the penny from circulation. The Legal Tender Modernization Act, and the Currency Overhaul for an Industrious Nation Act were both efforts to eliminate the penny, but neither act passed.
The elimination of the penny would affect how people count their coins. People would accumulate less coins, and need to use coin-counting services less frequently. On the other hand, the revenue per coin-counting transaction would increase, given the higher average coin value. Overall, without the penny, people would change how they use machines such as Coinstar. Coinstar is a large supporter of the penny.
Coinstar places many of its coin-service and DVD kiosks at big retail stores like Wal-Mart (WMT). This benefits Coinstar because it increases traffic flow around its kiosks, which typically results in more transactions. Retailers benefit by getting a service fee.
Coinstar's largest retail customers are Wal-Mart (WMT), Walgreen Company (WAG), and McDonald's (MCD). Coinstar collects 30% of its revenue just from these three retailers. The company signs a contract with each retailer, but since these retailers are huge and have a lot of purchasing power, the contracts can be terminated at any time. If any of these retailers were to cancel their contract to have coin-service or DVD kiosks in their stores, Coinstar would have trouble filling in the lost revenue.
Coinstar charges 8.9% per coin-counting transaction. Some banks and other competitors already provide coin-counting free of charge, or for a lower percentage fee. Commerce Bank offers a free coin counting service, Penny Arcade. Chevy Chase Bank also offers a free service, Change Express. Consumers prefer these free services. An expansion of these coin-counting services by any competitors could hurt the results of Coinstar's operations. People will be less likely to use Coinstar machines, severely hurting coin-counting revenue.
The Online Video market is rapidly growing. In December 2009 alone, Americans watched 33 billion videos. There are many options for streaming and sharing videos over the internet, such as Google's YouTube and Hulu.
Coinstar participates in the Physical DVD rental market. If consumers transition away from DVDs and towards these online mechanisms, Coinstar stands to lose. If people can stream movies over the internet, there becomes less reason to rent. One of Coinstar's competitors, Netflix (NFLX), offers an option that allows people to stream videos straight to their computer or TV, giving it an advantage over Coinstar.
Coinstar is a company that operates in multiple, distinct segments. They have different competitors and various competitive advantages in each segment. One overall advantage is that Coinstar is an integrated provider of payment and entertainment services.