Coinstar, Inc. (CSTR), Netflix, Inc. (NFLX): The Future Is…Vending Machines?

This deal benefits Starbucks tremendously. The lower-priced options allows Starbucks to compete against McDonald’s Corporation (NYSE:MCD) $1 coffee, and I would wager that the quality of the coffee from the machines may be higher than that of golden arches. With so many Starbucks stores already, this opens up a new avenue of growth for the company.

A less promising looking concept is the Crisp Market kiosk. This is a machine which vends fresh, healthy food like salads and sandwiches. The first kiosk was opened in Chicago in 2012, and the company is planning to build out the Chicago market before any further expansion.

I think that there is a general mistrust of fresh foods from vending machines which will hamper Crisp Market’s success. There are plenty of places that sell pre-packaged fresh foods these days, so I think that if Crisp Market is successful it will be a fairly small business for Coinstar, Inc. (NASDAQ:CSTR).

There are a few other concepts, such as an electronics vending machine and a machine that lets people sample beauty products, but none of them look very promising.

10 years from now

When considering investments one should think about what the company will look like in ten years. By that time I suspect Redbox will be in a decline, so other vending businesses will need to pick up the slack. The Rubi is the only truly promising concept, but it’s not enough to make up for Redbox. Now, it’s possible that the Redbox gets transformed over the next 10 years; some locations have started selling tickets to live events for a $1 fee. And the partnership with Verizon Communications Inc. (NYSE:VZ) to create Redbox Instant is something, but it puts the company in even more direct competition with Netflix, Inc. (NASDAQ:NFLX).

I think that the Redbox is a bit of an anomaly for Coinstar, Inc. (NASDAQ:CSTR). Ten years from now I suspect that the company’s revenue stream will be far more diversified, but growth over this period will be much slower than in the past.

Value trap

Coinstar, Inc. (NASDAQ:CSTR) seems to be a value trap. Trading at 11.3 times earnings the stock seems to be cheap, but the enormous dependence on Redbox will ultimately hurt the company. Earnings will likely start to decline within a few years as streaming becomes even more ubiquitous, and it will take quite some time for the other vending concepts to pick up the slack. I’d stay away from Coinstar until the future becomes much more clear.

The article The Future Is…Vending Machines? originally appeared on Fool.com and is written by Timothy Green.

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