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GAXC -A GOING CONCERN?

Jan. 14, 2011 10:58 AM ETOUTR2 Comments
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
Coinstar, don’t leave; this involves you too.
 
In Global Axcess’s (GAXC) most recent quarterly report the major risk factors included a decrease in interchange fees which represents 34% of the firms ATM revenues, third party reliance on the manufacturing of DVD kiosks, failure in branding, failure in third party maintenance, and failure in keeping the DVD inventory up-to-date. There is nothing written that acknowledges the likely risk of DVD technological obsolescence.
 
As an investor, it concerns me that the company is working vigorously to acquire new DVD kiosk contracts and businesses on the cusp of change. Technology is moving away from physical media to streaming HD movies on demand. There are wireless routers, such as the Belkin N600 that can stream HD video to a game console or video box with a purchase price of under $100. Televisions are the ‘new’ computer monitor with HDMI ports standard on both the TV and PC. I haven’t visited a redbox since running Netflix through my Wii (although it only streams in 480i).
 
The only short-run upside that DVD vending has is that you can rent new releases without the wait, but it is only a matter of time before we are given the option to pay a premium to stream new releases.
 
DVD kiosk revenues comprise about 3% of total revenues for the last nine months, and about 6% for the last quarter as the company has expanded into the DVD vending business.
 
The bulk of GAXC’s business is in ATM interchange fees and surcharges; this part of the business still seems viable. There will still be a demand for physical cash as long as there are transactions involving items purchased on craigslist, narcotics sold on the street, and services performed off of account for tax avoidance purposes, to name a few. I was surprised when asked to pay only in cash recently; one was for the light rail next to Seattle’s Space Needle, and the other was after eating at an old fashioned burger joint in Coeur d’Alene, Idaho. Some vendors do not trust checks and do not want to pay the fees associated with credit-card processing. Hopefully, the Treasury will continue to print fiat money in the form of paper and not pixels.
 
I have a sliver of hope for GAXC, but management needs to adapt and innovate; perhaps, grabbing a piece of cyberspace and modeling Netflix would be a better endeavor. The company would able to cut out a portion of its capital and lease expenditures by going digital.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am long GAXC.

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