Coinstar, which recently launched a Web site called Meals.com, seems to have put together a value-creation recipe of its own: "Carve out" the site as a subsidiary, sell a minor stake to attract high-powered investors, anoint a new CEO and pump out a four-page news release to trumpet the deal.
Voila! Watch the company's market value sizzle.
Yesterday, the Bellevue-based maker of coin-changing machines, saw its stock skyrocket on the news that it has sold 11 percent of the wholly owned Meals.com to a consortium of investors for $5.5 million. With the announcement, the stock jumped $4.656 and to closed at $13.969, still well off its 52-week high of $30.81 but a remarkable 50 percent one-day jump. It gave up some of those gains today, slipping $1.281 to close at $12.688.
Yesterday's advance pushed Coinstar's market capitalization up by nearly $100 million to $281 million, more than making up, at least on paper, for the transaction that allows the company to retain 89 percent of the Web site.
Coinstar also announced that Meals.com will be a "subsidiary carve-out." Coinstar founder and Chief Executive Jens Molbak will assume the role of chairman and chief executive of Meals.com, which targets food shoppers who want quick recipes and accompanying shopping lists.
Molbak, a member of the Molbak Nursery family, founded Coinstar while a graduate student at Stanford University. He will remain Coinstar's chairman but will relinquish the CEO title to Dan Gerrity, formerly its president and chief operating officer.
In parlaying a strategy undertaken by many Internet start-ups, Coinstar also made sure to attract a cache of Internet stars who easily draw Wall Street's attention.
The new partial owners of Meals.com include a who's who of Seattle's tech scene: Naveen Jain, CEO and founder of InfoSpace.com; Steve Hooper, former president and CEO of AT&T Wireless; Wayne Perry, vice chairman and former CEO of Nextlink; and John Cunningham and Rufus Lumry, directors of InfoSpace.com.
"There are significant individuals behind it, with a lot of vision," said Hambrecht & Quist analyst Shawn Milne. "They can quickly hook into right companies and people."
Gerrity said the new subsidiary and the management reassignment were done to reconcile the different sets of demands needed at Coinstar and Meals.com. The more mature Coinstar business has a strategy that requires constant cash flow. Meals.com, as a start-up, put a squeeze on the parent company.
Coinstar's one-day windfall comes from more than just a corporate reshuffle and fancy name associations, said Milne, who believes carving out Meals.com gives Wall Street a better tool for assigning valuation to the e-commerce business.
"We think it's going to unlock the hidden value of the core business," he said. "We can separate (Meals.com's) cash flow."
With 11 percent of Meals.com sold at $5.5 million, the Web site would be valued at about $50 million. Or, given about 20 million shares outstanding, about $2.50 a share.
"It's been well-capitalized," Milne said.
But more important, Coinstar will begin to report Meals.com's operating results separately in its quarterly statements, and that would allow analysts to confer on Coinstar a higher-valued - some would argue inflated - "metrics" than they would a coin-machine manufacturer.
"There was no way of valuing (Coinstar's) services business," Milne said. "But smarter people than I just did."
Undoubtedly, it would also take a lot of smarts to brand Meals.com. The unit hopes to generate revenue by deploying customized versions of its site to supermarkets.
Another source of revenue would be on-site kiosks - next to its coins-to-cash machines - where shoppers can download recipes and shopping lists before heading to the aisles.
Apart from the usual e-commerce challenges of branding and creating traffic, Meals.com would be operated by a parent struggling to turn a profit of its own. Coinstar lost $8 million in the most recent quarter, missing analysts' estimates, on sales of $21.9 million.