Just found this board.
Although I very rarely short stocks, I initiated a short on MOVI at $29.29 on 3/28/05.
My rationale:
(1) MOVI/HLYW is grossly overvalued relative to BBI. Both trade a market cap of approx. $2 Billion. However, BBI is the far-and-away brand leader, generating $6 Billion of revenue annually vs. MOVI/HLYW's $2.5 Billion. In addition, MOVI/HLYW has more net debt than BBI, at a higher interest rate.
(2) MOVI/HLYW has no growth strategies. Over the past few years, consumers have clamored for subscription pricing models as well as Online delivery. Consequently, Blockbuster adjusted its business model, introducing No Late Fees, MoviePass, GamePass, and BB Online. To date, MOVI/HLYW has done nothing. At this point, BB Online has attracted close to 1 Million subscribers. And Blockbuster's in-store MoviePass has attracted 2.3 Million subscribers.
(3) The competitive landscape has changed dramatically against MOVI/HLYW, just as it's taken on lots of debt at very high interest rates. As the online market continues to grow, BB Online will steal customers from both MOVI and HLYW. At the same time, Hollywood stores compete directly with Blockbuster stores in many markets. Hollywood stores will simply not be competitive with a "No Late Fees" and "MoviePass" Blockbuster.
Looking to cover sub-$20 within 12 months, which would represent an over 30% gain. Downside catalyst will be missed earnings/lowered guidance within the next few months. |
