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Coinstar Going Green?

17 Sep, 2012 By: Erik Gruenwedel, Chris Tribbey

Kiosk vendor’s interest in recycling mobile phones could surpass Redbox

Following launch of the iPhone 5, demand for consumer-oriented means of recycling old mobile phones and tablets for cash is expected to enhance the business horizon for privately held ecoATM, an analyst said.

With the smartphone and tablet predicated on rapid evolution of technology and planned obsolescence (18-month lifecycle for the typical cellphone), encouraging consumers to recycle dated devices for cash refunds has spawned a cottage industry of companies looking to mine a burgeoning market. Depending on the make, model, year and condition of the device, a consumer can get a refund from $20 to up to several hundred per unit.

B. Riley & Co.’s Eric Wold believes Coinstar’s probable acquisition of ecoATM (from its current 15% to 20% stake) could see the recycling kiosk operator supplant Redbox as the parent’s top revenue generator ($1.3 billion to $1.7 billion) by 2017. Indeed, Wold projects ecoATM could surpass $2 billion in revenue within the next six years — a tally he said it took Redbox eight years to reach. Coinstar also is investing heavily in kiosks offering Seattle’s Best Coffee, which is owned by Starbucks.

“We estimate that easily more than 1 billion mobile phones could be retired within the U.S. over the next five years alone — demonstrating a robust monetization opportunity for the companies emerging recently to tackle that challenge,” Wold wrote in a Sept. 17 note.

The analyst said the average ecoATM transaction takes from five to 10 minutes with the customer receiving the cash at the kiosk. Major retailers deploying internal recycling programs include GameStop and Best Buy. According to the Environment Protection Agency, less than 15% of mobile phones are recycled — with the majority of old phones either thrown away or stored in a box.

Wold, who remains bullish on Redbox and disc rentals, said Coinstar investors’ concern regarding the potential obsolescence of the DVD can actually embrace the concept with ecoATM. He said that unlike a new-release rental movie, ecoATM has no inventory or margin risk since acquired phones and tablets have already been sold — a reality that is factored into the cash refund.

In fact, ecoATM works similar to video stores buying used discs. At a video store buying used discs, a consumer is offered a cash based on a title's age, condition and resale prowess. Wold said phone companies support third-party recycling efforts since it promotes consumption of new hardware.

“We believe a disproportionate portion of Coinstar’s valuation is focused solely on near-term Redbox rental trends — which not only misses the significant remaining opportunity for physical rentals, but gives no value for the likely acquisition of ecoATM — a company that could easily dwarf Redbox within five years,” Wold wrote.

Coinstar CFO Scott Di Valerio might offer more details during a Goldman Sachs presentation Sept. 20.

About the Author: Erik Gruenwedel

About the Author: Chris Tribbey

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