A Blockbuster Box? Or Too Late to the Game Again?

Blockbuster may finally be trying to compete with Netflix (NFLX).

Blockbuster (BBI), seems to finally be working on a set-top device for streaming films directly to TV sets. This comes months after a similar announcement from Netflix (NFLX) and LG Electronics at CES and word it may embed the technology in Micrsoft's (MSFT) Xbox consoles. The device is expected to utilize Blockbuster's access to Movielink's 6,000 strong Movie catalog just as soon as the content is migrated to Blockbuster.com (sometime before June).

Does this make shares a buy? No.

In March Blockbuster announced that for fiscal 2008, it expects to deliver adjusted EBITDA in the range of $290-$310 million, which corresponds to GAAP financial measures of operating income [EBIT] in the range of $113-$133 million and net income in the range of $5-$25 million. Even at the high end of the range that equates to EPS of only $.13 cents a share which means shares currently trade at 25 times the top end of estimates and 108 times the low end. Either way, too expensive.

Here is the thing. The box top game is a race. The first one out with an affordable offering wins. This isn't something I envision people swapping in and out of. The set-top they buy initially will be the one they use for quite some time.

I am still mystified at the apparent blase' attitude by Blockbuster with this. From mail rentals, to online rental, and now the box set, the company has consistently been behind the competition. This is the right move to make, it just should have made it in May last year?

Disclosure: No position.

Comments

[singh]

i think 5 is possible. IF NFLX can double it can too

[billddrummer]

BBI won't win the set-box race because it's too busy trying to buy failed consumer electronics chains. Apparently, it doesn't want to face the fact that retail-based low dollar transactions are history, if you want to grow EPS by any reasonable multiple. The delivery costs of brick-and-mortar are just too high: land, buildings, leases, inventory and staff all cost too much, and it will take nearly 2 years of rental business to breakeven on a new location. Which might explain why I've seen more BBI stores close in this area (northern NV) than open in the past year.