It's time for a third-quarter update from movie rental veteran Blockbuster (NYSE:BBI). Will Thursday night's report read like Friday the 13th or My Little Pony Strikes Back? Last quarter was more of a tragicomedy, and then that financial crisis hit consumer spending like a ton of bricks. What's next?

What Fools say:
Here's how Blockbuster's Motley Fool CAPS rating stacks up against some of its peers and competitors:

Company

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating (5 max)

Apple (NASDAQ:AAPL)

$98.6

20.7

****

Best Buy (NYSE:BBY)

$11.4

8.8

***

Netflix (NASDAQ:NFLX)

$1.8

19.7

***

Blockbuster

$0.31

27.0

*

Data taken from Motley Fool CAPS on 11/04/2008.

Blockbuster's competitors are a motley bunch, ranging from the digital (Apple) to the plain old movie retailers (Best Buy), with Netflix taking up a niche all its own in mail-delivery rentals. But the CAPS community rates them all higher than Blockbuster.

A couple of All-Star CAPS members think that the chain is heading for bankruptcy. "This company has huge debt problems, so they may get trounced in the current environment," said longtime Fool Har1en back in September. Hold that thought.

But the company has its fans, too. Polarimetric, for example, gives Blockbuster a thumbs-up rating and explains that "Blockbuster is finally competing with Netflix instead of just letting Netflix eat their lunch. This is important." The brand name counts for something, and the threefold strategy of online videos, DVDs by mail, and physical stores should eventually pay dividends. "They still have the ability to become a profitable business again."

What management does:
CEO Jim Keyes, who took the helm in spring 2007, may not have miraculously erased years of sloppy management overnight, but at least the horror of double-digit negative profit margins are a distant memory. Still, the man is trying to change the corporate culture here, and that takes time.

Margins

4/2007

7/2007

9/2007

1/2008

4/2008

7/2008

Gross

53.7%

52.3%

51.6%

51.5%

52.0%

52.0%

Operating

0.2%

(1.5%)

(1.6%)

(0.6%)

1.4%

2.8%

Net

0.1%

(1.7%)

(2.0%)

(1.3%)

0.4%

0.2%

FCF/Revenue

1.1%

0.8%

(2.4%)

(2.4%)

(0.3%)

(0.7%)

Growth (YOY)

4/2007

7/2007

9/2007

1/2008

4/2008

7/2008

Revenue

(0.1%)

0.5%

0.2%

0.0%

(2.1%)

(0.5%)

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:
Remember the debt problems? As it turns out, Blockbuster has been signing better store leases lately. Thanks to those more beneficial deal structures, the company's former parent Viacom (NYSE:VIA) graciously decided to remove half of its outstanding letters of credit to its former video chain; $75 million lighter of foot, Blockbuster now has a slightly smaller liquidity problem.

That's the biggest news I've heard out of 1201 Elm St., Dallas, this fall. Management is still tinkering with several new store designs and getting over the heartbreak of a financially unstable Circuit City (NYSE:CC). Preparations for the coming holiday quarter are paramount, and the legends of the fall pale by comparison.

So check in on this report, but more for the forward guidance and progress reports than for recent results. I believe in Keyes, but he may have taken on a mission impossible here. I hear the Indiana Jones theme in the background as Blockbuster's turnaround races against the clock.

Best Buy is a Motley Fool Inside Value recommendation. Netflix, Best Buy, and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find out what all the best investors are saying about your favorite stocks.

Fool contributor Anders Bylund is a Netflix shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.