Outerwall's Upcoming Catalysts Make It A Tantalizing Buy

| About: Outerwall Inc. (OUTR)

Outerwall (NASDAQ:OUTR) is in the news again for three important reasons. First, it plans to release its third quarter financial report this week. This is scheduled to happen after the market close on Thursday, October 24, 2013. Second, the company has also gotten positive attention because it's largest shareholder, Jana Partners, is putting pressure on the company to focus on generating more cash flow. Third, the controversy around the stock has caused many people to bet against the company resulting in a short interest of about 35%.

On the day of the financial report this Thursday, at 2:00 p.m. PDT, CEO J. Scott Di Valerio and CFO Galen C. Smith will host a conference call and shareholders can expect them to discuss the company's strong, steady, and stimulating performance. The CEO should also offer strong future guidance.

So how did Outerwall become the darling of growth investors overnight? Why, for instance, did it rank amongst Fortune's Top 100 fastest growing companies last year?


Actually, the company has spent more than 20 years becoming an overnight success. During this time, it has been building some of the most profitable brands in the retail industry. However, we're not talking about megastores spanning the country; we're talking about kiosks. Still, big things do come from small packages if given enough time, energy, and initiative to highlight their winning qualities. And that's precisely what Outerwall has done.

Here's the whole enterprise in a nutshell:

Outerwall brought consumers products that delight them and that generated consistent revenue for the company.

Specifically, they made the following kiosk brands popular:

Redbox® entertainment
Coinstar® money services
Rubi™ coffee
ecoATM® electronics recycling kiosks

The plan was simple: blend automated retailing with catchy, clever business ideas that can be scaled up by enterprising retailers.

Consequently, Outerwall's attention-grabbing kiosks can be found in:

• neighborhood grocery stores
• drug stores
• mass merchant outlets like malls, etc.

Moreover, this idea is not only spreading across the United States, but all of North America. But that's not all; you can come across Outerwall's kiosks in Puerto Rico, as well as in the United Kingdom and Ireland.


Outerwall's stated mission is to make life better for people in everyday ways. This is done by giving people four useful services. Redbox kiosks offer easily accessible entertainment through new-release DVDs, the latest Blu-ray Discs® and the most popular video games; Coinstar kiosks offer automated coin-counting for loose change; ecoATM kiosk offer payment for recycling used electronics; and Rubi, the new kiosk on the block, offers hot coffee to weary people needing a neuronal jumpstart in their long day.

In essence, then, the plan for 20 years has been to build ubiquitous simple businesses for entrepreneurs to fulfill consumer's everyday needs.


You have to admit, it's a good idea that has been well-branded and effectively marketed. However, why does it work as well as it does?

Here are three reasons why Outerwall has a winning idea that will continue to flourish:

First, it has re-imagined retail. Malls and other retail locations have empty spaces that are too small to use to build a vendor outlet yet too large to waste. Kiosks fill in these otherwise unused, wasted spaces very neatly.

Second, it offers all-around satisfaction. Retail establishments are happy to rent out their unused space and attract more business; entrepreneurs are happy to find an automated business that is in high demand and that can be scaled up; and consumers are happy to get everyday things they need quickly and easily like DVDs and gaming videos, usable money from coins, cash for obsolete electronics, and hot coffee to revive their minds and bodies.

Third, it's an idea that can grow over time. New ideas are being launched all the time. New locations are being built all the time. New entrepreneurs are looking for more profitable businesses all the time. When you really think about it, Outerwall has not even begun to tap into its full growth potential.


Early this week might be a good time to seriously consider buying some Outerwall stock if you are an aggressive investor because the earnings results should be positive on Thursday, the company stock has a huge short position that needs to be covered at some point and the largest activist shareholder is seeking a sale of some or all of the company's businesses to generate cash for all shareholders.

Disclosure: I am long OUTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.