Give me more love, or more disdain;
The torrid or the frozen zone
Bring equal easy unto my pain;
The temperate affords me none:
Either extreme, of love or hate,
Is sweeter than a calm estate.

-- "Mediocrity In Love Rejected," Thomas Carew

On Wednesday morning, movie rental incumbent Blockbuster (NYSE:BBI) reports first-quarter earnings for its 2007 fiscal year. As you might tell from the National Poetry Month excerpt here, I am thirsting for more information out of the company, whether it confirm or refute my theses.

What analysts say:

  • Buy, sell, or waffle? Nine analyst firms follow Blockbuster through thick and thin. Four of them are positive on the stock, one has a negative rating, and the remaining four recommend that you hold your shares. In our Motley Fool CAPS investor community, some 28,000 users strong, over 840 players have rated the company to give it a lowly one-star grade.
  • Revenues. $1.37 billion would satisfy the average analyst forecast, though that's 3.9% below the year-ago revenue of $1.43 billion.
  • Earnings. Last year, Blockbuster made a $0.05 profit per share, but Wall Street expects a $0.15 per-share loss this time.

What management says:
In the latest earnings release, CEO John Antioco explained that there will be growth in this quarter, though it comes at a price:

This growth will require some investment in the first half of the year, but we believe this investment is the right strategy to deliver value to our shareholders and should result in more online customers, more in-store customers, a larger share of the overall domestic rental market and increasing revenues.

There is plenty more discussion of this concept below; read on, gentle Fool.

What management does:
This being the first full quarter to feel the effects of the Total Access online/offline rental program, I would expect a better revenue development than usual. On the other hand, margins should suffer across the board. Not much, mind you -- the Blockbuster Online operation is still too small to move the needle very far for the entire company. Still, it's a portent of worse times ahead.

Margins

9/2005

12/2005

3/2006

6/2006

9/2006

12/2006

Gross

56.0%

55.2%

55.0%

55.1%

54.9%

55.2%

Operating

(0.4%)

0.3%

(0.1%)

0.6%

0.6%

2.3%

Net

(10.1%)

(10.3%)

(9.3%)

(7.2%)

1.1%

1.0%

FCF/Revenue

(11.6%)

(3.7%)

(0.5%)

0.9%

3.0%

4.5%

YOY Growth

9/2005

12/2005

3/2006

6/2006

9/2006

12/2006

Revenue

0.8%

(3.6%)

(5.5%)

(5.8%)

(5.8%)

(3.5%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As long as Total Access remains, and the price-to-reward ratio for its customers is as beneficial as it is today, Blockbuster will gain plenty of new subscribers. But allow myself to repeat ... uh, myself: there is no way the company can afford to run its business this way for very long.

Every new customer is more money down the drain, as store costs remain fixed and Blockbuster surely isn't as efficient at running a mailing operation as veteran and pioneer Netflix (NASDAQ:NFLX) is. I'd love for Blockbuster to break out the online numbers -- besides the simple customer count we're used to seeing -- to prove me wrong, though I'm not exactly holding my breath.

Netflix is a Motley Fool Stock Advisor selection. To learn more about the newsletter service featuring both Tom and David Gardner, consider a free, no-obligation trial today.

Fool contributor Anders Bylund is a longtime Netflix shareholder who holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is as good an entertainment proposition as any action movie released in the last ten years.