Specifically, the issue for Netflix was future growth. Having maxed out the home delivery model, the company is in the process of transitioning its business further to streaming content — a pool with significantly greater competition. Coinstar does not face the same issue. It can continue focusing on blanketing the U.S. with its kiosks. Instead of having to depend on streaming for its future, streaming content for Coinstar represents an opportunity to grow sales beyond kiosks.
It is a subtle difference. Netflix likely will lose home delivery and therefore must transition to streaming. Coinstar, thanks to its price differentiation, will not lose its kiosk model in the same way. As such, these two companies are in entirely different places in their growth evolution.
Price differentiation matters greatly for future stock price. Netflix, already pricey, is a luxury product. Coinstar is positioned as an impulse buy for the stronger consumer; for the weaker consumer, Coinstar is priced so low as to still be attractive to this ever-growing segment of the economy.
It was a mistake for Netflix to raise prices on home delivery, but Coinstar’s hike doesn’t seem nearly as dangerous. Think about it: Will someone really not rent a movie because the price is 20 cents higher? Give me a break.
This is a facetious argument by Coinstar short sellers at best. I suspect Coinstar can raise prices several more times before running into any real resistance on the demand side of the equation. If anything, the increase in prices should be celebrated by investors. CSTR is flexing its muscle, confident in its market position and loyalty of its customer base. That said, Coinstar is not likely to abuse this fact with multiple price increases — this is the first increase in eight years.
First Mover Advantage
Netflix enjoyed a first mover advantage with its business, and so does Coinstar. The trouble for Netflix is that by having to morph into a streaming media company, the door is open for big-time competition.
Coinstar dominates the kiosk model. It has secured prime locations in the market, and over time it will only solidify this position. Competition might become an issue, but not anytime soon. If the company stays focused on that model and is opportunistic instead of dependent on streaming, profit growth is nearly assured.
Put it all together and there is no way Coinstar should be treated in a similar manner to Netflix. Their similarities end at renting movies. The selling in CSTR is a screaming buying opportunity.
As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks.