Coinstar, Inc. (CSTR)’s Key Drivers

However, the company’s goal is to focus on adding content that will generate new subscribers. Redbox will be keeping its DVD kiosk business in place while growing the online subscription video business, because the Redbox Instant service will provide redeemable credits for DVDs. Redbox Instant now has only 5,000-6,000 titles, which is only a fraction of what some of the bigger firms have, including Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN), and Hulu, but big investments from Verizon Communications Inc. (NYSE:VZ) and Coinstar can change that.

5. Video games

Coinstar’s Redbox is seeing traction in the video games rentals business. The higher margin video game rentals made up 5% of revenues in the last quarter, and are expected to increase in the future. And the company is expecting higher rental volumes in 2Q13 as 11 new video games are rolled out in Redbox kiosks. Redbox’s video games are rented out daily for $2 apiece, and it is a slight variation from leading video game rental providers like Gamefly, which provides monthly subscriptions.

As games are played mostly by younger age groups, the pricing of Redbox is a lot more optimal. Gamefly is like the Netflix, Inc. (NASDAQ:NFLX) of video game rentals, but at a much higher price point based on tiers. Gamefly has more than 8,000 gaming titles and has been growing rapidly and is a profitable business according to its S-1 filings with the SEC, but hasn’t taken the IPO route yet. And if Redbox pushes for a much bigger content base from video game publishers it can gain a lot of incremental sales from video games.

The bottom line

There are a few growth drivers in place for Coinstar, and the company is a profitable one with healthy levels of free cash flow. The company’s management has a share repurchase program in place, which might drive the stock price higher as well. Some of the company’s unproven business lines like the Rubi coffee machines, if successful, can do well for the company’s top line revenues as well. Coinstar is trading at a forward P/E of 10, which represents a good entry point.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Coinstar’s 5 Key Drivers originally appeared on Fool.com and is written by Ishfaque Faruk.

Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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