Is Netflix, Inc. (NFLX) Overpriced?

In addition, Netflix was playing catch-up when it signed the children’s content deal with Dreamworks; Amazon already has a deal with Viacom, Inc. (NASDAQ:VIAB) for Nickelodeon content.

Amazon.com, Inc. (NASDAQ:AMZN)’s wider product offering gives it a significant advantage in attracting customers. Amazon Prime subscribers can access streaming content free of charge. Additional cross-selling opportunities may arise as Amazon expands its offering.

Ultimately, it will be difficult for any company to create a moat around an online streaming business. Netflix will eventually have to move all of its DVD content to streaming as consumers become less willing to wait for DVDs in the mail. In addition, there is nothing — save for years of movie ratings that generate decent recommendations — stopping Amazon from poaching subscribers, especially given its cross-selling abilities.

Bottom line

There are no moats in online streaming services. Although Netflix, Inc. (NASDAQ:NFLX), Amazon, and Hulu may lead the space for years to come, content providers will ultimately have the upper hand as content-starved distributors bid up prices. As a result, investors should make a cautious appraisal of Netflix’s true earning power before buying the stock.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, DreamWorks Animation, and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is Netflix Overpriced? originally appeared on Fool.com and is written by Ted Cooper.

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