By Mike Freeman, The San Diego Union-Tribune
Outerwall, the parent company of San Diego cellphone recycler ecoATM, said this week that it would explore strategic alternatives after a large shareholder called for the company to shed its money-losing ecoATM division.
Based in Bellevue, Wash., Outerwall purchased ecoATM in the 2103 for $350 million. It envisioned ecoATM’s mobile device recycling kiosks as an extension of its automated Redbox DVD and Coinstar money counting machines.
But ecoATM has yet to turn a profit. Last year, the division lost $137 million — the bulk of which came from a non-cash $86 million write down related to the purchase price.
EcoATM’s revenue was $113.5 million, up from $94 million the prior year, according to Outerwall’s annual report.
“I think ecoATM could get to break even or positive (cash flow) next year, but the question is will it grow to become a contributor to a company that is generating $2 billion a year in profitable revenue from Redbox and the coin-counting kiosks?” asked Eric Wold, an analyst with B. Riley & Co. “Is ecoATM going to be more of a distraction than a growth contributor?"
Engaged Capital, which owns 14 percent of Outerwall’s stock, doesn’t see a future for ecoATM inside the parent company. It sent a letter to the company in February recommending that ecoATM be sold or shut down if no buyer was found.
“Simply put, this business is a losing proposition, and the bleeding should be stopped immediately,” wrote Glenn Welling, chief investment officer of Newport Beach-based Engaged Capital.
EcoATM employs 218 workers in San Diego, according to spokeswoman Michele Perry. Founded in 2008, its kiosks give consumers an easy way to earn cash recycling mobile electronics. It has more than 2,020 kiosks deployed nationwide, mostly in shopping malls.
Outerwall hired Morgan Stanley to help with its strategic and financial review. “The company does not intend to discuss or disclose developments with respect to this process unless and until the Board has approved a definitive course of action or the process is otherwise concluded,” said Perry in an email.
Analysts see potential outcomes ranging from selling the ecoATM or Coinstar divisions to selling the entire company or taking Outerwall private.
Last year, Outerwall purchased online mobile phone recycler Gazelle, which typically paid more for mobile devices than ecoATM. That removed a competitor from the marketplace.
Still, most cellphones are traded in at Apple stores or retail outlets of Verizon, AT&T and other wireless network operators, according to Wold. Outerwall’s efforts to get ecoATM’s kiosks/technology used by wireless providers hasn’t gained traction.
"I don’t think it ever becomes a major driver for Outerwall," he said. "It doesn’t need to be in their company."
Outerwall announced its strategic review on Monday. Its shares ended the week of trading up 10 percent at $37.99 on the Nasdaq.
©2016 The San Diego Union-Tribune Distributed by Tribune Content Agency, LLC.
