market folly

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Brian Zied of Charter Bridge Capital who pitched long Outerwall (OUTR).


Brian Zied's Sohn Canada Presentation

Runs a L/S Equity Strategy with a focus on consumer. Presented three case studies:  1) The Home Depot: $125B hardware store that built a culture that benefited consumers,  2) Cigarettes: why do people still smoke?  Smoking is a social decision, the experience of smoking a cigarette –gives a break in their day, 3) Netflix: why it didn’t kill cable, consumers just watched more TV (both online and off) –benefited both


Pitched LONG Outerwall (OUTR), a provider of automated retail solutions, known for their Redbox service. It has 44,000 kiosks around the US, which represent 85% of revenues and 20% operating margins. Over the past 5 years, has grown revenues at 18% CAGR, EBITDA at 21% CAGR, yet has 34% short interest outstanding. Currently trades at 4x 2015 EBITDA or about 20% 2015 FCF. Negative market sentiment due to their core business of DVD becoming irrelevant by VoD and Amazon/iTunes. However, Redbox has grown from 25% market share to 34% market share from 2011 to 2014, incredible given negative sentiment.

Stated that consumers use multiple rental services, 16% of all users surveyed indicated they use both Redbox/VoD and 45% of consumers preferred Redbox outright over video on demand or other services. Will likely continue to increase share from DVD by mail and brick and mortar (local convenience stores). This can perhaps lead to pricing power if they are able to continue to expand kiosks and win share. Believes new studio agreements are likely to provide more flexibility with similar economics, adding to the underling characteristics of the business of stable to growing revenues and margins (highlighting that volatility from movie success).

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.