I wasn't alone in my thinking. The company has earned just one out of five stars on CAPS. However, several weeks ago my extreme bearishness started to wane, and the company's recent move to adopt a "say on pay" policy contributes to my waning pessimism -- I'm thinking management's really improved.
Granted, I still think Blockbuster will have a difficult time in a competitive landscape that not only includes archrival Netflix
Furthermore, Blockbuster has a heck of a lot more debt than cash -- $184 million in cash and $665.6 million in long-term debt. Its total debt-to-capital ratio is 53.6%, and while that may be an improvement over the past several years, such a hefty debt load is still daunting, especially in this time of economic turmoil and considering the company's lack of an operating profit in the last 12 months.
Still, I decided to end my bearish call on Blockbuster in CAPS. It isn't only because Blockbuster predicted it may be profitable in 2009. I think it might not be wise to bet against new(ish) CEO Jim Keyes, who came to the company from 7-Eleven. He was awfully successful at the convenience-store chain, and it sounds like he might turn Blockbuster around by capitalizing on its strengths instead of continuing to fall down on its weaknesses. (My Foolish colleague Anders Bylund has discussed some of Keyes' interesting turnaround plans.)
And now this -- Blockbuster's giving shareholders a say on pay? It's one of corporate governance watchdogs' most fervent wishes that companies give their shareholders the right to vote on top executives' pay. Even though these advisory votes are "non-binding," they do let shareholders give their opinion about compensation policies. Blockbuster's ahead of the curve on this; very few companies have adopted these policies. Aflac
I still don't think Blockbuster's a raging buy; the debt load and competitive challenges still make me leery. However, the stock is down 47% in the last year, and management seems to be taking a visionary turn on the company's future. I'm thinking it doesn't make nearly as much sense to bet against it.