Global Axcess (GAXC) Big Brother NCR on Fast Money CNBC
NCR ($2 Billion Mkt Cap)manages ATM’s and is also rolling out DVD Kiosks. NCR is trading at 20x forward EPS. Wait a minute….that’s exactly what GAXC ($20 Million Mkt Cap) is doing and it is trading at 6-7x forward EPS. Once GAXC rolls out a material number of DVD kiosks 400-500, I believe it will become a takeover target.
Disclosure: LONG GAXC
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Article today by Eric Savitz – Barron’s
Coinstar (CSTR) shares are coming under some selling pressure amid rising concerns on how the company’s future growth will be affected by the increasingly complicated exertions of its Redbox video kiosk unit to acquire copies of newly issued DVD.
To review for those new to the story: Redbox kiosks rent movies for a dollar a day. The very low price irritates many of the movie studios, who think consumers who might otherwise buy new release will instead simply rent them on the cheap. Ergo, at least three large studios now refuse to provide new releases tothe company; they want a 30-day window in which new releases would not be available via low-cost kiosks. The two sides are litigating the matter; meanwhile, Coinstar is addressing the issue by simply buying copies of the movies it wants at retail. That process has become harder recently, with both Target (TGT) and Wal-Mart (WMT) placing limits on how many copies of any title can be purchased at one time.
Yesterday, Coinstar reported Q4 results which were in line with expectations, but the stock is selling off any way, as the debate over the impact of the workaround resufaces.
Brigantine Advisors analyst Steven Frankel today cut his rating on the stock to Hold from Buy, “awaiting signs that margins have bottomed and that the company can put its disputes with the studios behind it.”
Frankel notes that the cost of the workaround is clearly affecting margins: gross margin fell to 15.9% in the latest quarter from 17.4% in Q3 and 18.7% a year ago. He figures the workaround is adding $1-$3 a disc in additional costs. “The company needs to put these issues behind it and agree to some sort of revenue sharing/rental window,” he writes. “Without such an agreement, margins are likely to remain under pressure, as the workarounds only get more difficult as the size of the installed base of kiosks grows.”
Pali Research analyst Richard Greenfield notes in a blog post today that Redbox is now 17% of the DVD rental industry, up from 9% at the beginning of 2009; he points out that the company has over 22,000 kiosks operating, heading to 30,000 by year end. Greenfield contends that everyone in the entertainment industry has a stake in seeing Redbox fail.
“If Redbox is able to flourish, while devaluing home entertainment – $1/day rentals makes all other forms of home entertainment appear overpriced – all of the companies we cover in the movie industry will suffer,” he writes. But good news, Redbox haters: he thinks the company faces tough times ahead. In particular, he points to the moves by TGT and WMT to limit purchases of new DVDs to five copies at a time – and the likelihood that other studios will go in the direct of Universal, Fox and Warner and demand Redbox agree to a window in which they would not have access to new titles.
Greenfield notes that the company says it is testing digital downloads at its kiosks; but with that technology the only available workaround would be piracy. “While Redbox can survive with low inventory of DVDs via work arounds, in a digital work low-inventory goes to no inventory,” he writes.
He adds that an agreement to accept a 30-day block on rental of new titles could have a big imapct on the company; he estimates new releases comprise 35%-50% of its business.
CSTR today is down $1.34, or 4.8%, to $26.59.
Yeah I’m glad that these bigger companies are fighting all the battles right now. The other interesting thing which was talked about by the NCR CEO in the video above was that he is focusing on rolling out multi functional kioks. GAXC is doing the same thing. The kiosks not only just distribute DVDs, but they allow you to download to memory card (which is prob where things are going), and also have a few other functionalities. The Redbox kiosks themselves are fairly limited.
IC