Movie-rental business Blockbuster (NYSE: BBI) reported earnings for the fourth quarter yesterday. They weren't bad; while the top line only managed an increase of just under 4%, net income on an adjusted basis more than doubled to 26 cents per share. For the full fiscal year, revenue was essentially flat, and the adjusted net loss widened to 71 cents per share versus a loss of 1 cent per share in the previous fiscal year. Those numbers, it seems, aren't so good.
And neither are the stats behind the flow of the green stuff. Operational cash flow declined for the quarter and was negative for the year. Free cash flow was flat for the quarter and negative for the year. In the previous year, both cash from operations and free cash flow were positive.
What do I think of Blockbuster? Not much. It's a competitor of Netflix (Nasdaq: NFLX), and it also competes against video-on-demand and pay-per-view services offered by cable businesses such as Comcast (Nasdaq: CMCSA). I know Blockbuster is trying to turn itself around, attempting to cut costs, restructure, and find its way in this era of new content-distribution models, but I just don't have strong confidence in its potential for long-term growth. Heck, I haven't stepped foot in a Blockbuster in a long time. Know why? There aren't any around me, and that wasn't the case many years ago. I actually use Redbox for my rental needs these days.
Blockbuster may have beaten estimates, but that doesn't mean I'm a believer. Maybe it will indeed turn around in the future, but I'll let other investors take their chances with this low-priced equity.
Steven Mallas owns none of the companies mentioned here.
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Reader Comments (Page 1 of 1)
3-07-2008 @ 10:42AM
Michael Schneider said...
Blockbuster does have some pluses:
1. It is cheap-- Barron's recently noted that the rental business will still be there despite the trend toward downloading and the low price discounts too much the competition.
2. There is some insider buying including buying by noted investor Carl Icahn (in addition to selling by some I should note).
3. The CEO is highly regarded.
4. There is an argument, made by the company and some analysts that Blockbuster will benefit from the slowing economy as people rent DVDs instead of more expensive forms of entertainment. (there is some historical evidence for the movie industry holding up well in bad times).
There are negatives however-- Blockbuster sells both used and new DVDs and some of this business could be hit as consumers pull back (on the other hand, you might find it more cost effective to buy a DVD from them than to go bowling or something).
3-12-2008 @ 8:03AM
Reagan Mutombo said...
My confidence in Blockbuster's turnaround will be reflected by their long term growth strategy, or so creative development. They have certainly added cost to their venture a year and half ago to enter the online and mail at home DVDs. I agree with the article in that I too don't see their growth in the long run unless we have another tech bust similar to the year 2001-02. I have a Blockbuster near my house which I don't go to no longer, not because I dislike Blockbuster, but the economic factors won't allow it. Gas prices are high and so that limits my desire to drive; the convenience of paying a cheaper price for a movie I can watch online via Netflix services is more appealing. And I don't have VHS at home so I feel limited to what I can get at a physical Blockbuster location. I think the stock price will remain in the current range for a long time before we hear of a possible merger, which I am hoping for: NFLX & BBI.