<<Well, I guess I'm going down with the BBI ship, as I loaded up even more today in the $5.90s. At this point, I hold over 15 thousand shares, at an average in the $6.70s.>>
It's been an abysmal month for Blockbuster in terms of stock price. I continue to believe in BBI's brand and fundamental value, and I've continued to buy on weakness. At this point, I own over 25K shares, at an average in the $5.90s. Hopefully, BBI has bottomed (since I'm way too concentrated and almost out of cash).
Ignoring everything else, it really comes down to 1 person and 1 event: The person is Carl Icahn and the event is Blockbuster's next shareholder meeting (May, 2006).
Icahn is BBI's largest institutional shareholder, having established his position in the $9s back in Dec, 2004.
Icahn has been vocal and active. From the beginning Icahn has sparred with Antioco, BBI's current CEO, stating that BBI should either be sold or run for cash.
In May, 2005 Icahn got 3 board seats (out of 7 total seats). As we get closer to next shareholder meeting, there are 2 likely scenarios, both of which should be great for shareholders: (1) Antioco turns BBI around, making it profitable again, or (2) Antioco can't turn BBI around, Antioco gets fired, and Icahn takes over.
I continue to think that BBI's business will recover. But if it doesn't, Icahn represents a substantial Plan B.
My timeframe is May, 2006, and my target is $10/share.
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To reiterate Plan A:
(1) New game consoles in Q4 = great results for BBI's gaming revenue, which currently represents almost 20% of BBI's total revenue.
(2) Online division has been the main money pit. But Online now has over 1 Million subs and continues to ramp. Online will go from red to black and take BBI with it.
(3) Amazon hookup with BBI Online would ensure a healthy BBI and would probably take BBI to $10 all by itself.
(4) Hollywood box office currently sucks but will recover.
(5) Blockbuster will increasingly take market share from Hollywood Video and Movie Gallery. In many markets, Blockbuster and Hollywood are located literally steps from each other. As a consumer would you rather go to Blockbuster or Hollywood? Let's see: Hollywood charges Late Fees; Blockbuster doesn't. Blockbuster offers an Online product offering; Hollywood doesn't. Blockbuster offers a robust in-store subscription offering; Hollywood doesn't.
In fact, I think that we're already witnessing important trends. While IMDB is signaling a healthy overall rental environment relative to last year, Movie Gallery reported that its Q3 Same Store Revenue would be down 10% YOY.
(6) Blockbuster is not going bankrupt anytime soon (at least not before May, 2006). If it ever got into a cash crunch, Blockbuster could reinstate Late Fees and/or sell/close its Online division.
(7) If any company is going bankrupt, it's Movie Gallery / Hollywood Video. Movie Gallery has as much debt as Blockbuster but with only 1/3 of Blockbuster's revenue base. In addition, Movie Gallery is poorly positioned, lacking both an Online product offering and a substantial in-store subscription offering.
As Online continues to ramp, Movie Gallery will be left with nothing but debt. And if Movie Gallery goes bankrupt, Blockbuster would be the main beneficiary. |
