Blockbuster (NYSE: BBI) is the latest company in the world. It was late to get into the business of sending DVDs in the mail and got murdered by NetFlix (NASDAQ: NFLX). It was late to the VOD market and took a beating from cable companies, Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN), among others.
Now, the video rental outfit plans to come out with a TV set-top box. Perhaps that can sit on top of the cable box, the DVD player, and the PC hook-up -- all of them sitting on top of a wide-screen LCD. In other words, the devices can be piled up to the ceiling.
According to Reuters, "Blockbuster Inc on Monday said it would roll out a new digital media player that brings fewer, but more recent titles from the Internet to consumers' televisions than a six-month old offering from rival Netflix Inc." The box will cost $99 and the films will be $1.99.
Who in his right mind wants one more consumer electronics device in the living room? No one.
Maybe that is why Blockbuster's shares trade at $0.95, near a 52-week low.
Douglas A. McIntyre is an editor at 247wallst.com.
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%.
U.S. stock futures rose Friday morning, indicating Wall Street could start on a positive note after the recent selloff. About an hour before the opening bell, the October jobs report will be released and Wall Street is expecting to see an ugly picture, including unemployment figure at a 5-year low. If the jobs data are much worse than expectations, Wall Street could still do an about face as this isn't the only bad news it expects today. Ford has already reported losses far below expectations and GM is about to follow suit. Oil has steadied at $61 a barell after a two-day plunge. Other economic releases Friday include September pending home and wholesale inventories.
Ford Motor Co. (NYSE: F)reported this morning a loss that exceeded Wall Street's expectations. It has lost $129 million in the third quarter and burned up $7.7 billion in cash. Excluding items, Ford lost $1.31 per share, worse than estimates of a 94 cents per share loss. Sales fell 22% to $32.1 billio, beating estimates for sales of $28 billion. The struggling automaker also announced it will cut another 10% of its North American salaried work force. F shares are trading 3% higher in premarket action.
Walt Disney Co. (NYSE: DIS) reported a 13% decline to $760 million, or 40 cents a share in fiscal fourth-quarter net income, below estimates of 43 cents per share. Sales increased 5.8% to $9.45 billion, exceeding the $9.33 billion average estimate. Disney said it is suspending share buybacks to preserve capital. The company also saw a a considerable slowdown in its parks and resorts as well as slowing ad sales. DIS shares are down 3.5% in premarket trading.
Netflix (NASDAQ: NFLX) released its third quarter results yesterday, and things looked pretty good: net income up 30%, revenue up 16%, subscriber-acquisition costs down 15%, and the rate of subscriber cancellations remained flat.
But the company cut its revenue forecast, and net subscriber additions are down 30% so far for October compared to last year. CEO Reed Hasting said (subscription required) that "Since July, conditions have deteriorated markedly. It now appears that there will be continued growth for Netflix, but not as fast as last year." He added that "The state of the economy could explain this modest headwind."
I'm not so sure. Given that watching DVDs at home is a lot less expensive than many other forms of entertainment, it should be somewhat immune to economic woes. In an economy as weak as this one, any struggling company will be quick to blame its woes on the economy. Sometimes that's the case but, often, there are more serious issues that won't be solved by a macroeconomic upturn.
In the long run, it's hard to see what gets investors so excited about Netflix. The growth appears to be slowing, even with a price/earnings ratio of 20 -- which is pretty high in this market.
Netflix (NASDAQ: NFLX) had something of a flashy third quarter. The online DVD-rental company reported the numbers on Monday after the market closed. Revenues did well, rising 16% to $341.3 million. The bottom line, however, was an even better story. Earnings per diluted share on an adjusted basis rose 38% to 36 cents. How does this compare to Wall Street estimates? Beautifully, as analysts were looking for 34 cents per share. So management was able to deliver two extra pennies. It's cool when a company can go beyond the usual beat-by-a-penny routine, isn't it?
I applaud Netflix for its earnings data, but I can't say I'm a huge fan of its current cash-flow performance. Operating cash flow dipped nearly 6% to approximately $73 million. Free cash flow declined almost 28% to about $26 million. Looking at other numbers, I see that gross subscriber additions increased 18% on a year-over-year basis. Gross margin also improved.
Unfortunately, CEO Reed Hastings believes that the recession will negatively affect subscriber growth rates. Of course it will. At this point, every business, and more importantly to investors and traders, every stock is going to feel the wrath of the economy and the market bears. Sure, Netflix made deals with Disney (NYSE: DIS), Starz and Microsoft (NASDAQ: MSFT) that may help the company offset some of the economic realities out there, but I think the bottom line is that you'll have to be careful about buying Netflix at this point in time.
The business of renting movies from stores just got a generation older. Too bad for Blockbuster (NYSE: BBI). Netflix (NASDAQ: NFLX) knows that even sending DVDs by mail will not serve consumers needs during the broadband era. It is ramping up its plans to allow customers to get content over the internet.
According toThe Wall Street Journal, a Netflix spokesman said "we know the future belongs to instant watching, to streaming to your TV." While the story may seem to be about Netflix and download services from other companies including Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN), it is really about the death of Blockbuster.
The old-line movie rental store company's stock trades for $2.28. That is down from well over $20 five years ago.
Streaming movies may take another year or two to become part of the entertainment habits of most households, but cable has already put instant VOD into many homes. The market for "content now" is already here and will soon be crowded with competition.
Blockbuster has no way to combat the coming wave even it if it is still out at sea. The firm's days are numbered, which means its shares are going to move even lower.
Douglas A. McIntyre is an editor at 247wallst.com.
A good indication that a company lacks a future: its business model is lampooned by The Onion, a satirical news parody site, in a video featuring it as a "historical attraction." Blockbuster (NYSE: BBI) meets that fate in the video below.
This video should be required viewing for anyone contemplating an investment in the company's stock. I know, the company is attempting to transform itself into another Netflix (NASDAQ: NFLX), but the reality is that Blockbuster has no particular competitive advantage there, and its weak financial position makes it unlikely that it will survive and thrive in a price war.
I've been bearish on Blockbuster for a long time, and I just don't see any reason to think things will turn around.
CIBC initiated Nortel Networks (NYSE: NT) with a Sector Performer rating based on what they see as the company's limited growth and margin prospects.
Needham initiated Juniper (NASDAQ: JNPR) with a Hold rating, citing valuation.
Blockbuster (NYSE: BBI) was initiated with a Hold by Needham, which would like to see if the company's turnaround is sustainable before becoming more constructive on the shares.
With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are Time Warner Inc. (NYSE: TWX), Cisco Systems Inc. (NASDAQ: CSCO), News Corp. (NYSE: NWS), and Whole Foods Market International (NASDAQ: WFMI). Let's take a look at which companies Wall Street analysts are expecting to be among the top earnings gainers and decliners this week.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Here is a novel idea. Big Yahoo! (NASDAQ: YHOO) shareholder Legg Mason thinks more investors would support Carl Icahn's effort to control the portal company if the raider will not sell out to Microsoft or anyone else for under $33. At $32.99 it's no deal.
Legg Mason's Bill Miller toldReuters, "The difficulty with Icahn is he'd have more shareholder support if he would say he wouldn't sell the company for less than $33."
Fair enough. One of the problems with hooking up with raiders is that they often fail. Microsoft (NASDAQ: MSFT) has already indicated it would pay $33 for Yahoo!. Why should shareholder take less?
Miller may be thinking of Icahn's recent deals to pressure Motorola (NYSE: MOT) and Blockbuster (NYSE: BBI) to improve "shareholder value". Neither one of those have done well. Investors who followed Icahn in have lost plenty of money.
Legg Mason's comment makes sense. "Put up or shut up:"
Douglas A. McIntyre is an editor at 247wallst.com."
No you can't. Circuit City doesn't have any sort of game plan at the moment, and it's sinking fast. The company's stock is priced at $2.31 as I write this. The goofy Blockbuster Inc. (NYSE: BBI) transaction is gone (for now, at least...there are reports saying that it could be resurrected at a later date, although I don't buy that it will happen at all). It isn't competing effectively against Best Buy Co., Inc. (NYSE: BBY) and Wal-Mart Stores, Inc. (NYSE: WMT). In short, Circuit City is a Titanic-like electronics retailer that doesn't know how to keep its ship from hitting icebergs.
So this resignation isn't surprising. Of course, is there any way to make money off the stock? I do believe there is downside to come on the share price, which would therefore imply that shorting it could work out. Alas, I wouldn't recommend it. You just know that some company and/or financial entity out there might come in at any point and make a bid, and the shares could skyrocket. Although the Blockbuster deal didn't make sense, it doesn't mean that there isn't some transaction scheme out there that would be logical. Circuit City is a stock merely to watch out of curiosity, it's not one to do anything about.
Disclosure: I don't own any company mentioned here; positions can change at any time.
Citing unnamed sources, The New York Postreports that Blockbuster (NYSE: BBI) could come back to Circuit City (NYSE: CC) to try to acquire the company.
The sources said that Circuit City pulled out because of weakness in the credit markets, but still feel that a deal could have strong long-term benefits. I don't think it makes sense for Blockbuster to acquire the company but, if it does, pulling out for now is probably a good idea. Shares of Circuit City tanked when Blockbuster announced that it was no longer pursuing a deal, and, according to the Post,Best Buy (NYSE: BBY) isn't interested because of antitrust concerns. With few indications that there is anyone else bidding for Circuit City, and the company's fundamentals in a rapid state of decline, it seems like the longer Blockbuster waits the less it will have to pay. Unless another bidder emerges, there's no real rush.
Back in April, Blockbuster made a preliminary proposal to acquire Circuit City "with an all cash offer in the range of $6.00 to $8.00 per share, subject to due diligence." With shares of Circuit City down 9% to $2.32 on Wednesday, Blockbuster could probably get the company for considerably less if it made another offer today.
With Circuit City bleeding cash, continued consumer weakness could make it really cheap on the courthouse steps later this year. Maybe then Blockbuster shareholders would be more supportive of a deal.
One of the silliest possible mergers in recent memory (no small accomplishment) is dead in the water now that Blockbuster (NYSE: BBI) has announced that it will no longer pursue its previously announced effort to acquire Circuit City (NYSE: CC).
In a press release issued yesterday afternoon, Jim Keyes, Blockbuster Chairman and CEO, said that "Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City."
Given the shares of Blockbuster tanked when the company announced its initial offer, the company's shares could be expected to trade up today.
For Circuit City, the situation is more grim. With its stock in the toilet, Blockbuster's offer represented one of the few exit strategies. Blockbuster's assertion that its "initial due diligence" was a factor in its decision to withdraw its offer indicates that the company's financial situation may be worse than it appears to outside shareholders.
In a press release offered in response, Philip J. Schoonover , chairman, president and chief executive officer of Circuit City, said that "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value. The board's review was not dependent on Blockbuster's participation."
But Blockbuster was the only suitor to emerge publicly so far and, now that it's lost interest, there's little reason to expect anyone else to emerge.
Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.
Yet Blockbuster (NYSE: BBI), the struggling video store chain, decided to buy. I don't know what got into Blockbuster's head to make it think that combining two struggling companies would make an agile competitor. The Richmond Times reports that it wanted to create a one-stop shop for movies, games, and electronic equipment. But that dream died when Blockbuster pulled its $1.3 billion offer after reviewing Circuit City's books.
Carl Icahn has said he would buy Circuit City. But it's losing money -- $164.8 million, or $1 a share, in its fiscal first quarter. This was $100 million more than its Q1 2007 loss. And Blockbuster's conclusion after a closer look at its financial statements does not bode well for Circuit City's future. Circuit City stock is down 7.8% in pre-market. Let's see whether any new bidders emerge.
U.S. stock futures rose Friday morning, indicating Wall Street could start on a positive note after the recent selloff. About an hour before the opening bell, the October jobs report will be released and Wall Street is expecting to see an 
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With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are 
Citing unnamed sources, The New York Post 
One of the silliest possible mergers in recent memory (no small accomplishment) is dead in the water now that 
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