Amit Chokshi_

Blockbuster's Year of the Dog

BBI might be a short to zero but between now and then there will probably be plenty of volatility. This stock's been heavily shorted for a few years so recommending a short at $4-$5, basically near its all time low, when a lot of shorts have made significant money on the way down probably requires very tight buy stops (as tight as 5%).

BBI wouldn't be an attractive buyout candidate, it's currently valued at 6.0x EBITDA which is not cheap for a company that is struggling like BBI is. Icahn is still in BBI as well as other investment managers and they would not give in to a low ball premium like typical dumb money institutions (Fidelity, T Rowe, etc). Leonard Green "won" the war for Hollywood Video at a greatly reduced price and that performance hasn't seemed to be very pretty even with a seemingly cheap price.

With the leverage on BBI and it's cash flow, there's not a lot of juice left to pay a big premium and that prob won't win over Icahn and other investors. On top of that, there have been other decent businesses like JAG and CSC that couldn't find buyers and there are plenty of good businesses that are cheap relative to the financing PE firms can obtain where as BBI is probably too big of a challenge. Maybe 5 years ago, a deal could have been done to milk the company for cash but at this point with improvements and changes in technology and delivery of content changing so rapdily, BBI's cash production is dwindling at a much faster rate than people probably expect.

Blockbuster Offers Big Upside Potential

Why do you figure the worst is behind them? I love a contrarian play as much as the next person but in BBI's case, do you think it's just an issue of reducing store count and streamlining working capital to milk the business for cash? That might have worked for Autozone and some other retailers where there's not really a technology wall against them but I think BBI and MOVI are value traps.

VOD is going to continue to grow, so as a viewer you can pay $2-$4 to get a movie into your home rather than go to BBI and pay the $5 and have to worry about returning it. I just think the business model is under too much pressure. Plus from just a simple valuation metric rundown, according to Yahoo Finance the stock is trading at 15.0x fwd earnings, 5.9x EV/EBITDA, and 1.3x book. In this market that seems fair to expensive for a company that's in the type of long-term trouble BBI is in.

How much upside do you think BBI offers in terms of share price?