Coinstar churns out a 2,252-percent rise
(Puget Sound Bus. Journal; 06/12/98)
The coins-to-cash company Coinstar Inc. has rung up losses that would fill
penny jars aplenty.
But although the Bellevue-based company is not making a profit, that's of
little concern to at least one analyst.
Shawn Milne, an analyst who follows the unique company for Hambrecht & Quist
in San Francisco, said Coinstar's losses are mostly tied to depreciation on its
network of change-counting kiosks.
Coinstar's chief, Jens Molbak, also characterized the company's $29.6
million loss in 1997 as expected.
"What's more important (than the losses) is that revenue per unit is
increasing over time," said Milne.
Coinstar's green machines continue to multiply in supermarkets across the
country, and the older kiosks are grossing steadily growing revenues. An
average Coinstar kiosk now takes in $10,597 a year, up from $9,433 last year.
Since more than 70 percent of the company's red ink stems from depreciation -
and depreciation expenses increase with the rising number of kiosks - Milne
said "the more meaningful way to evaluate the company is when net cash flow
He predicts that could happen in the third quarter this year, but might not
occur until the fourth. Milne doesn't forecast a net profit until 1999 or 2000.
The Coinstar machines charge a 7.5 percent processing fee on each coin-
counting transaction. Molbak's distribution strategy hasn't strayed from the
supermarket focus, despite interest from other retailers.
The company has deployed more than 3,500 Coinstar machines, almost entirely
in grocery stores across the country.
"We are testing some other channels, but our primary focus is supermarkets.
We have a few bank (locations), but haven't added to those and we're also
working with some mass merchandisers like Target," said Molbak.
In March, Coinstar started to roll out in Vons supermarkets in Southern
California. Milne said a deal with Safeway Inc., the parent company of Vons,
may not be far behind.
Coinstar has not only maintained its retail focus, it has also kept a
domestic focus despite overseas opportunities. Europe holds obvious potential
with the European Union's plans to introduce the common euro currency.
"All the European coins will be worthless in four years," said Molbak. Yet
he underscored that Coinstar has announced no specific plans to ship its
Aside from international opportunities, Molbak said Coinstar has had the
chance to pursue other ventures that could generate secondary revenue streams
for the company.
But that's not on Molbak's agenda at the moment.
"We want to stay focused on our core business. It's not that these other
opportunities haven't been good. We'll look to them when is the time is right.
That's act two. We're focused on act one," said Molbak.