Blockbuster Still Has Two Big Things Going For It

Blockbuster (BBI) saw a much improved quarter, and even Cramer is warming up to the stock. A couple of key factors for the long-term on this one:

One: Blockbuster was late to the online party, but has competitive advantages over Netflix (NFLX). They have the physical locations. Think a bank with physical locations versus an online bank. Folks are impetuous and still like to have the option of running to the video store to pick up a movie that they want to see NOW! Blockbuster can offer more to the customer than Netflix. Could we ultimately see a tie up between Netflix and Hollywood once Netflix's growth slows? Possibly, but who cares, lets focus on the fact that Blockbuster remains very cheap.

Two: The "traditional" rental market, which includes Netflix, is not shrinking. Video on demand and downloadable movies are still a pain and aren't much of a threat at this point. There remains a big split between the PC (the P stands for personal) and the TV.

As I mentioned before, Blockbuster is paying down their debt with free cash flow, which is on the upswing. All businesses are just the sum of discounted free cash flow, and Blockbuster has the ability to generate a lot.

Disclosure: I still own shares of Blockbuster

Related: Blockbuster Q3 2006 Earnings Call Transcript