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THE MORNING BUZZ: Home Video Stocks Are At the Mercy of the Market

28 Jul, 2002 By: Kurt Indvik

It has been a dramatic several weeks for the stock market with huge swings (mostly down) that have caused a general sense of uncertainty as to what lays on everyone's financial horizon.

The recent positive quarterly reports from several of the home video industry's major chains notwithstanding and the general ability of the home entertainment industry to withstand difficult financial times, retail stocks in our category have also taken a bit of a pasting, with a notable exception. Although today it appears many of these same stocks are enjoying a substantial boost upward.

Since July 8, or for about three weeks, the Dow Jones average has dropped about 8.5 percent. Similarly, retail stocks in the home entertainment industry (or those playing a significant role in selling home video software) have also taken a hit. Movie Gallery's stock is down about 11 percent; Hollywood Entertainment's about 12 percent; Best Buy also 11 percent; Target down about 9 percent and even Wal-Mart (the single largest seller of home video) is down almost 12 percent.

The one exception is Blockbuster, whose share value has dropped less than one percent.

Last week both Blockbuster and Hollywood issued fairly positive results from their most recent fiscal quarters. Blockbuster's second quarter revenues grew by 3.6 percent over the same period of a year ago, while Hollywood's jumped 6 percent.

Meanwhile both chains have aggressive plans to continue to expand their business models beyond video rental. Blockbuster is pushing hard to grow its sellthrough business and compete head on with the mass merchant chains, while Hollywood is hot on video games (both sales and rental) and plans on expanding its Game Crazy store-within-a-store concept to another 100 locations this year to test the initiative before, perhaps, rolling it out chain wide.

Newcomer to the securities scene, Netflix, meanwhile, is taking a bit harder pummeling from the market, its stock being down a little more than 25 percent from its July 8 share price of $16.46. It may have the additional burden of being an online business that, while Netflix had been bucking that downward trend, may have added to its decline over the last several weeks.

But the issue with the American investing public is not with the Internet business. We've been there and done that. The uncertainty continues to be what other “generally acceptable” and not so acceptable accounting practices will rear up to bite the next Fortune 500 company as they continue to come clean about some of the accounting shenanigans of the ‘90s that have been used to paint, perhaps, a little rosier financial picture of themselves for investors and analysts (who were playing along, knowingly, with the game) than truly existed.

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