Blockbuster (NYSE: BBI ) has been suffering from some scary times. Last week's third-quarter earnings were probably what any investor would have expected, given the competitive climate right now, but some investors are eyeing Blockbuster to stage a turnaround.
Recap: Blockbuster revealed a net loss of a whopping $1.42 billion, or $7.84 per share, because of charges related to goodwill impairment. Excluding the charges, it posted earnings of $0.02 per share. It saw a small 1.8% increase in sales, to $1.41 billion, with overall same-store sales declining 3%. However, same-store rental sales fell 6.3%, including a 7.4% decrease in domestic same-store rental revenues. The company warned on next quarter and the year, and President and COO Nigel Travis resigned.
In its conference call, Blockbuster management waxed enthusiastic about some of its initiatives, which for now are positioned as short-term pain to set up the plot for long-term success. And of course, many investors are counting on that to save the day. On the other hand, one analyst posed the idea that some investors feel the company is spending "like drunken sailors."
At any rate, the company's subscriber service is ramping up nicely, not only attracting new customers but also luring those who had defected from its brick-and-mortar operation. It also said that an added Blockbuster perk, in-store coupons, is attracting customers and taking advantage of physical presence as a differentiator; it's a marketing ploy that snared our own Nathan Slaughter, in fact.
In the call, Chairman and CEO John Antioco said of competitor Netflix's (Nasdaq: NFLX ) recent price cut, "...we believe, in spite of what they may say, that it is in direct response to the impact our service was having on their business."
Despite that skepticism, given an Amazon.com (Nasdaq: AMZN ) entry, it seems Blockbuster stands more to lose than Netflix. Given Amazon's online prowess, which includes a treasure trove of customer reviews, as well as its Internet Movie Database (IMDb.com) and possibly even some integration of its new A9.com search engine, one can imagine that it could build one killer service.
Blockbuster has its eye on becoming "a brand where you go to rent, buy, or trade movies and games, new or used, in-store or online." Again, though, it faces all the competitors named above, as well as the 800-pound gorilla of the used sector, eBay (Nasdaq: EBAY ) .
Investors who may be considering an investment in Blockbuster right now are certainly counting on the company's ability to revitalize itself. However, its history -- particularly that it sat complacent for far too long, enjoying the fruits of an industry that was ripe for change -- makes it hard for me to believe that it is up to the challenge.
Netflix and Amazon.com are both
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Although Alyce Lomax does not own shares of any of the companies mentioned, she's considering a subscription to Netflix.
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