Blockbuster (NYSE: BBI), the troubled DVD-rental chain that competes with Netflix (NASDAQ: NFLX), reported earnings for the third quarter on Thursday. The top line decreased by a little under 3%, and the net loss per share was $0.08 on an adjusted basis, which was $0.07 better than expected. Okay, I suppose that's kind of cool from a certain angle. In fact, one analyst quoted in the piece had a good take on the company.
I, however, do not have a good take on Blockbuster. I am not bullish in the least. For one thing, it takes a lot to look past a net loss and say that there's something to the earnings story that goes beyond the bottom line. For another thing, the press release indicates that Blockbuster is not doing well in terms of cash flow. Management needed to use $18.2 million for operations during the third quarter, which was slightly more than the amount needed in last year's similar period. And as for free cash flow, that was negative $53.7 million in Q3 2008 versus negative $38.6 million in Q3 2007. This doesn't scream "Buy Blockbuster!", does it?
Another negative aspect to the story is that the gross margin went down by 70 basis points. I will give one bit of credit, however: same-store sales for domestic locations actually increased slightly over 5%, and worldwide comps expanded by almost 2%.
Not that those comps are going to sway me, mind you. Blockbuster could be a turnaround story in the making; I can't predict the future. All I can do is get a feeling for the risk of the situation.
Blockbuster closed down over 14% on Thursday to a price of $1.32 per share. I know, it was a bad day for everyone. And, sure, in the after-hours session, the stock moved up 1.5%. As far as I'm concerned, however, the cliche cheap for a reason holds true here. There's speculative investing, and then there's downright insane investing. I'll keep an open mind and change my opinion if I see the kind of positive changes that would impress me (e.g., improved brand equity through better marketing, new business models, etc.), but I see no reason to roll the dice on Blockbuster.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
11-09-2008 @ 12:17AM
Roger said...
Blockbuster is a stock that will be at 4 dollars by mid 1st qtr of 2009
One thing that will make BBI unbeatable is the fact that they have gotten togther with strong future media companies, Just look at Intel tv chips, Blockbuster is to be the only widget on it,
All tv's in the future will probably carry this chip, which means mad money,
So they have debt problems, ok, but people continue to use the service and recession has shown to be good, look at 2001 chart of bbi, more tha tripled in value within a 9 month period