Netflix, Inc. (NFLX): A Risk Worth Taking

Amazon.com, Inc. (NASDAQ:AMZN), meanwhile, also has a scary high forward P/E at 140x. Although Amazon’s streaming video service is in competition with Netflix, we see Netflix’s initiatives for rapid international expansion to be a leg-up, so to speak. Ken Fisher of Fisher Asset Management is a top-name investor owning the e-commerce company (check out Ken Fisher’s latest bets).

Briefly mentioned above, Dish Network Corp. (NASDAQ:DISH) and DIRECTV (NASDAQ:DTV) are two companies looking to compete with Netflix by offering streaming video via satellite services. Other than the two competing against each other for subscribers, they are also seeing Netflix and Hulu replace the need for conventional TV subscription services. Both companies enjoy gross margins in excess of 40%, but that’s where the similarities end. Dish has some of the poorest expected growth in the industry – at a 2% 5-year EPS CAGR – and also trades above DirecTV from a valuation perspective. Interestingly, George Soros is still one of Dish’s top investors (check out George Soros’ latest bets).

Competitor DirecTV trades at a forward P/E of 10x, where Dish is at 15x. Dish’s weakness in subscribers also continues to plague the company. Last quarter, Dish saw its churn rate jump from 1.35% to 1.6% (qoq). Meanwhile, DirecTV saw an increase from 1.44% to only 1.53% over this same time. Warren Buffett loves DirecTV, and owns nearly 30 million shares while having 2% of his 13F invested in the satellite company (see Warren Buffett’s new picks).

To recap: Netflix has a solid head start in the video streaming industry, and has already embarked on the big task of entering the international market. This has led to higher than expected costs, but should more than compensate in the long-term with added revenues. Another possibility is that at a $5 billion market cap, a larger tech company could snatch up its operations. Netflix is one our five takeover targets loved by hedge funds (see all 5 here).