STEVE COHEN, VENDING MACHINES AND USAT

In Japan and most of Asia, many products from electronics, newspapers, beverages, and anything that fits in a vending machine is sold through a vending machine. America so far only dispenses sodas, snacks and newspapers. Vending machines are by far extremely lucrative profit machines because it cuts out the most expensive part of the business which is the labor. However the problems comes when you would like to sell more expensive products without dealing with change or large sums of money. That is where USA Technologies (USAT) comes in. USA Technologies, Inc., incorporated in January 1992, offers a suite of networked devices and associated wireless non-cash payment, control/access management, remote monitoring and data reporting services, as well as energy management products. Basically they are the leader in vending technology from payments (e-Port), vending monitoring (USA Live), and vending machine energy management (Misers).

Although not profitable yet, the company is growing at a compounded revenue growth of 39% according to an article on Motley Fool which also highlighted this company as a microcap to watch but USAT has grown predominantly through relationships with Coca-Cola (KO), Pepsi Co (PEP), Mastercard (MA), and Sprint (S). While a very small company with a market cap a little above 100 million, there seems to be room to grow with the growing industrialization of the world and movement toward vending machines. Recently USAT announced a deal with Coca-Cola and Mastercard to use their eport system in their vending machines to a total of 7,500 machines in the US while suggesting global growth is just another signature away. The terminals allows Mastercard payments as well as MasterCard PayPass technology.

While that is a bigger deal, USAT supplies laundry mats and hotels payment services as well providing them a stable place to develop into other areas such as hotel vending. The idea is not that USAT provides ePort but the fact that it provides a comprehensive proven payment and monitoring system that is backed by 65 patents allows them to grow with more security from competitors. But the growth areas are numerous. It only has a deal with Mastercard at this time but having one with Visa or another credit issuer will increase it’s reach. Next there is the growth of vending beyond laundry mats and sodas. There are snack foods, gambling, hygenie items, electronics, newspapers, magazines, digital music, digital books, digital movies to pretty much anything. There is also the global growth. While many countries still lack the vending machines, it will eventually come.

SAC Capital Associates, led by billionaire trader Steven Cohen bought $10 million worth of USAT stock, for a 15% interest and Steve Cohen is a major guru to follow who has averaged a staggering 40% return since 1992. That’s why he was the second highestest paid hedge manager grossing over one billion last year. Another big stakeholder is Wellington Management, which owns an 8.1% stake. In a Businessweek article, Luis Martins, an analyst for Taglich Brothers figures sales will rise to $16.2 million in 2008, from $9.8 million in 2007. He sees the stock, now at 7.90, at 11 at yearend. Currently the price is about $9.50.

Another for the possibility of buy out. Why would a company like to buy out USAT? Well they have the technology that is accepted and proven. They have relationships with big vendors. They have the patents and security. They are growing at a fast pace especially now with the first major distribution of their ePort system with Coca-Cola. It’s expanding out into Kiosk as seens by Sony PictureStation Kiosk to print pictures. Kiosk will be a major format for product distribution. Who would be interest? Mastercard or Visa to have a monopoly on vending machines for their payment method. Banks or credit transaction processors. Imagine if every kiosk and vending machine was using USAT. This may take years to play out but USAT seems to on the right track but I would trust Steve Cohen.