In Video-Rental War, One Stock Could Be Big Winner by Eric J. Savitz
Shares of video rental rivals Netflix (NFLX) and Blockbuster (BBI) are down 34% and 17% respectively YTD as their profits disintegrate amid cut-throat competition. Tech Trader Eric Savitz says Netflix "looks like an interesting speculation": Blockbuster's main weapon has been its Total Access plan, which, for the same price as Netflix, gives subscribers the dual benefit of their choice of in-store or internet rentals (Netflix has no stores). The program has taken its toll: In its past quarter, Netflix reported its first-ever sequential customer decline. But Blockbuster now admits the program is killing its bottom line (it lost $113 million before items in the past quarter), causing CEO Jim Keyes to state "While we remain committed to capturing market share in the overall video-rental market, we are absolutely focused on striking an appropriate balance between growth and enhanced profitability going forward." When Blockbuster finally cracks and raises prices, Netflix shares will rally. Other positives include no-debt, $390M in cash, a share price equal to expected revenue of $1.18 billion, seven million subscribers (up from 1.5M in 2004 when shares cost double), and the potential for a buyout given the stock's deflated price.