<<No need to rub it in.>>
Hi Dave,
Back in March 2005, I made a case for buying NFLX when it was trading at $9/share.
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Unfortunately, I missed out on the opportunity, as I was hoping that NFLX would go sub-$8.
But I'm indifferent as to whether I double my money from NFLX or from BBI. And BBI is currently in the same boat that NFLX was in back in March 2005.
NFLX began its ascent with Blockbuster's May 2005 shareholder meeting. And Blockbuster will begin its ascent no later than the May 2006 shareholder meeting.
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NFLX began to move up from $9/share in May 2005, after Carl Icahn won 3 board seats on BBI's board. Icahn's presence signaled an imminent easing of the online competitive climate. And Walmart's departure further eased the climate.
But higher online pricing and fewer competitors also benefit Blockbuster Online.
By the time of Blockbuster's May 2006 shareholder meeting, 1 of 2 scenarios is likely to play out, and either scenario bodes well for BBI's stock price: (1) Antioco turns BBI around, making it profitable once again; (2) Antioco doesn't turn BBI around, Antioco gets fired, and Carl Icahn takes over.
If Icahn takes over, then it's likely that BBI will be sold off or run for cash. So it becomes a question of what Blockbuster is worth.
(1) Blockbuster Online has roughly 1/3 of NFLX's customer base and is capturing roughly 1 out of every 2 new online consumers. Given this, I think that it's reasonable to value Blockbuster Online at roughly $400MM, approx. 1/3 of NFLX's roughly $1.2 Billion enterprise value.
(2) Blockbuster stores generate more than twice the revenue and cash flow that Movie Gallery and Hollywood Video stores combined generate. Given this, I think that it's reasonable to value Blockbuster stores at roughly $3 Billion, twice MOVI's enterprise value of roughly $1.5 Billion.
A $3.4 Billion enterprise value for BBI translates to around $12/share. Perhaps this explains why Carl Icahn stated that BBI was undervalued at $9/share back in Dec 2004, when he became BBI's largest institutional shareholder.
My target for BBI is $10, and my timeframe extends to the next shareholder meeting, in May 2006.
Disclosure: Currently hold over 25K shares of BBI, at an average in the $5.90s. |
