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Video Rental Companies Suffer

Video Rental Companies Suffer

Blockbuster (BBI) reported today that they had an operating loss during the second quarter and their shares fell 16% subsequently. The company lost $39.7 million as revenue fell 22% due to competition from Netflix (NFLX) and Redbox (CSTR). Blockbuster has tried to compete with Netflix by starting it’s own delivery service called Total Access. And some of the changes have been beneficial as the loss in revenue didn’t come from actual DVD rentals but from store closures and merchandise. The company is expected to loss 5 cents next quarter but profit for the year. The stock is currently very cheap and had risen from 60 cents a share to 85 cents a share before the drop today. Look for continued weakness as the company transitions from store fronts to less expensive delivery methods.

Netflix Delivering Profits

Netflix is positioned the best of the three DVD companies as their online program continues to grow. Revenue for the year is expanding 22% while profit is growing at a rate of 35%. The price to earnings ratio for the company is near 20 which represents a slight discount to earnings. The pullback today in sympathy with Blockbuster could present a buying opportunity but the over consumer is not healthy yet as the economy struggles to expand therefore consumer based names are a risk.

Redbox Getting Squeezed

Coinstar (CSTR) owner of Redbox came under fire today for a different reason, their inexpensive rentals are hurting the production companies which release movies to them. Therefore Warner Brothers is joining Universal and 20th Century Fox in delaying new movie releases to the kiosk operator. Coinstar fell 11% and could see analyst downgrades if the new release dates affect revenue in the future.


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