Circuit City, once a well-known retail fixture, is no more. Last week, I asked whether bookseller Borders (NYSE:BGP) was the next Circuit City. (According to 61% of Foolish readers who responded to our poll, the answer's a resounding "yes.") This week, let's take a look at another possible contender for such a woeful demise: movie-rental giant Blockbuster (NYSE:BBI).
Every day on my way to and from Fool HQ, I see a local Blockbuster store strewn with sale signs -- because it's closing. That's testament to news that my Foolish colleague Rick Munarriz recently covered: Blockbuster plans to shutter many of its bricks-and-mortar stores, replacing them with automated kiosks.
That's no surprise, though, is it? Rivals such as Netflix (NASDAQ:NFLX), Coinstar's (NASDAQ:CSTR) RedBox, Apple (NASDAQ:AAPL), and Amazon.com (NASDAQ:AMZN) all compete with Blockbuster in one way or another. The old weekend back-and-forth trips to the video store seem like part of the distant past, given all the far more convenient options consumers have these days.
Furthermore, Blockbuster has serious financial issues to contend with. Let's look at a few of its financial metrics, compared to those of its closest rivals:
|
Company Name |
TTM Revenue Growth/(Loss) |
TTM Profit/(Loss) per share |
Debt/Equity Ratio |
Quick Ratio |
|---|---|---|---|---|
|
Blockbuster |
(17.5%) |
($2.56) |
407% |
0.2 |
|
Netflix |
21.3% |
$1.81 |
17% |
0.8 |
|
Coinstar |
79.1% |
$1.83 |
121% |
0.4 |
*All data from Capital IQ, a unit of Standard & Poor's. TTM = trailing 12 months.
Blockbuster certainly looks like the most frightening of the three, with its major drop in revenue and its loss of $2.56 per share in the last year. Its debt-to-equity ratio of more than 400% should be shelved in the "Horror" section, too. A quick ratio below 1.0 can be a red flag, particularly if a company's sales and profit margins are suffering mightily, and especially if it may have to deeply discount prices to clear out its inventories.
That said, Coinstar looks a little scary, too, with a high debt-to-equity ratio and a quick ratio under 1.0. But its revenue is rising impressively, and it's still profitable, both of which could help defang investors' fears.
As the numbers prove, Blockbuster is a risky stock right now. Investors shouldn't be fooled into thinking it's a "cheap" investment because of its penny stock status. The former industry leader may be well on its way to becoming as obsolete as Circuit City, as it tries to evolve in an rapidly changing industry beset by disruptive influences like digital delivery. Worse yet, its precarious financial position makes any efforts to keep up with its rivals all the more challenging.
Add in a difficult macroeconomic climate with high unemployment, and fretful, budget-minded consumers, and Blockbuster could face its final curtain call very soon.
On a more positive note, the chart above might make you envious of Netflix shareholders. A stock trading at 34 times earnings might not look particularly cheap, but the discs-by-mail mogul boasts solid revenue growth, a nice profit, and a far-from-worrisome amount of debt. That's hardly the image of a company facing impending doom.
If only poor Blockbuster could say the same.
