Booth-Laird presentation on Outerwall on OUTR, posted with permission (PDF format here – Booth-Laird-Investment-Partnership-Outerwall-long-thesis)
At our 2014 Annual Meeting held on July 21, 2014, we presented our long thesis on Outerwall (OUTR), a beaten down, highly shorted stock that is misunderstood by the market and, in our opinion, presents substantial upside potential with limited downside.
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Profile
- Outerwall (ticker symbol: OUTR) is U.S. leader in automated retail
- Self-service, stand-alone kiosks in heavily trafficked locations
- Founded in 1989 as Coinstar
- Changed name to Outerwall in 2013
- $1.1B market cap
- Over 100 patents
- Brands
Flagship Brands – cash cows
Redbox
Coinstar
Developmental Concepts – growth stage
ecoATM
Coinstar Exchange
SampleIt
Redbox Instant by Verizon
Available at very low multiples
• Stock selling <7 times 2013 free cash flow & for <6 times expected 2014 free cash flow
• Despite the fact that free cash flow is still growing
• Capital expenditures to decline substantially over next few years
• Highly variable cost structure
• Available at less than 50% of revenue despite high
margins
• Revenue still growing
• Margins expected to grow even faster
Opportunity
• Maximum negativity from market due to Redbox
Face of the company
Seen as another Blockbuster-in-waiting
• Very high short interest
44% of float shorted – 10 days to cover
• Shifting investor base from growth to value-oriented
• Market cap down 37% YTD
Down 25.5% in last 2 months solely on negative analyst reports
• Work-out investment
Expect company to beat lowered market expectations, overcome market’s fear, & likely cause short squeeze
Automated Retail
• Self-service, stand-alone kiosks in heavily trafficked areas
• Strong role in future of retail
• Allows convenience for fulfilling immediate need at lower costs than traditional brick-and-mortar retail, even lower cost than e-commerce
• Limited overhead
No large rent expense (take up 12 square feet of space)
1 part-time employee can service multiple kiosks
Outerwall Rules Automated Retail
• No competitor can come close to matching Outerwall
• Outerwall has prime real estate no competitor can get
Ex. just about every Wal-Mart has a Redbox and Coinstar
It does not make sense to have a second kiosk from competitor in same location offering same service ?Lends itself to natural monopoly within a store
• Long-term relationships with major retailers throughout the country creates high barrier to entry for competitors
Wal-Mart, Walgreens, Kroger, Target, malls, gas stations
Retailer receives percentage of revenue
Drives foot traffic to store
Automated retailer of choice for any new concept
Full presentation here – Booth-Laird-Investment-Partnership-Outerwall-long-thesis
