While it may be true that offering online viewing of films would put Blockbuster in line with other services such as Movielink, Vongo, Apple’s iTunes and now Netflix, the brand itself is suffering. In 2005, Blockbuster not only had the opportunity to buy then fledgling Netflix for $50 million, they were nearly bankrupt and closing stores hand over fist.
It isn’t the first time they have made colossal blunders. In 2000 they signed a 20 year deal with Enron at a time when Enron was venturing into the telecom business. The deal lasted 9 months at which point Enron filed for bankruptcy.
Aside from monetary problems and poor business decisions, the other plaguing problem with blockbuster is selection. Their brick and mortar stores carry primarily new releases and do not carry NC-17 or Unrated films. It is also widely known that Blockbuster edits some videos to make them more “family friendly”. The online offering is much better and they seem to stock much of what the traditional stores do not.
With all that being said, is BBI still a good investment?
Let’s look at the numbers. BBI trades at a whopping 40 times this year’s earnings yet the stock is at $6 a share. EPS is $.16 a share.
NFLX is trading at roughly 28 times this year’s earnings and a stock price of just under $23 a share. With an estimated 34% growth based on next year’s earnings, the multiple is just too low. Were Netflix given the same multiple as blockbuster, you would be looking at a $32 stock. Netflix could have a 50 multiple and be a $41 stock.
I don’t think Blockbuster is even in the same ballpark right now. Their earnings would have to increase significantly at this point to challenge Netflix. Netflix also has a market cap of $1.6 billion compared to Blockbuster’s $758 million. In the long run and especially over the next year I think Netflix comes out on top.
Keywords: Blockbuster, Movielink, Vongo, Apple, iTunes, Netflix
