Monday, May 14, 2007

Is the Video Store Industry Dying?

One of the smallest industry groups is the video store industry. Not only is it hard to find video store companies, of the ones that are out there, it's hard to find any that have market caps above $100 million. With the growth of video on demand through cable companies and the easy of video downloads on computers, seems to have had an impact on retail video outlets. Is it possible that there may be a stock that has developed a niche in this area and become a survivor.

If you just look at the stock prices of the two largest, Netflix, Inc. (NFLX) and Blockbuster Inc. (BBI), their stocks are down over where they were a year ago. Let's look at them more closely. Netflix offers movie rental subscription services exclusively online and has over 6 million subscribers. The stock has a P/E of 28 and a PEG of 1.2. Their latest year over year quarterly earnings growth was up 124% on a revenue growth increase of over 36%. Their balance sheet is in decent shape with over $380 million in the bank and no long term debt.

Blockbuster has attempted to combine the retail rental of videos, video games, and DVD's through both their stores and online. They recently reported their financials, stating that their first-quarter loss widened; this is in spite of the fact that their revenues went up by 5%. Although they have almost $400 million in cash, they have almost $1 billion in debt. This is one of those strange high institutional holding stocks that I had talked about in a previous article, with 129% of the shares owned by institutional and mutual fund owners.

Trans World Entertainment Corporation (TWMC) sells videos, video games, and music through mall-based retail entertainment stores and five online websites. Their trailing P/E is 14.4, their forward P/E is 58.5 and their PEG is a high 5.9. The company just reported that its chairman and CEO was paid $2.8 million last year who also receives rental income from the company for property and aircraft that he owns.

Movie Gallery Inc. (MOVI)is an Alabama based company which is a retailer and renter of DVD's and videos. They have a forward P/E of 12.2, over a billion dollars in debt, yet less than $33 million in cash. Their book value is negative $7.43 per share.

Author does not own any of the above.

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