Netflix, Inc. (NASDAQ:NFLX) was let off the hook as the CEO Reed Hastings is now allowed to post whatever he literally wants through social media. In fact, social media is being considered an acceptable alternative that may no longer require the lengthy approval process of the SEC. Zacks Investment Research states:
Last year, Netflix stirred a controversy when its CEO used Facebook to reveal monthly subscriber details. Netflix was charged by SEC for violating disclosure norms. However, the increasing relevance and participation of the social media in corporate communications forced SEC to revise its disclosure rules. SEC now allows companies to make corporate announcements over social media platforms, including Facebook and Twitter, by providing relevant web addresses through notifications on their company websites and press releases.
The movie streaming service has had some serious ups and downs. A series of events led to an exceptionally strong reversal in the price of the stock. The content deal with The Walt Disney Company (NYSE:DIS) put Netflix back on the radar as Netflix, Inc. (NASDAQ:NFLX) was able to secure significant content rights. Following that, Netflix was also able to secure content rights with Warner Brothers (Time Warner). The content rights that Netflix were able to secure did not go into immediate effect, meaning that the recent announcement from Reed Hastings, “subscribers watched 4 billion hours of streaming over the last three months.” The recent news is good because the user viewership statistic clearly illustrates that viewership continues to increase even with the current content collection. Netflix will eventually become an exclusive distributor of Walt Disney content in 2016, meaning that Netflix will have to wait 3-years before experiencing any benefits from the content deal with Walt Disney. In the meantime, Netflix is still growing its subscriber base at a fairly rapid rate.
Other bloggers like to point out, that Netflix has some serious competition. Amazon.com, Inc. (NASDAQ:AMZN) recently launched its own version of Netflix, by providing movies on demand through its Amazon prime streaming service. Not only is Amazon considered a serious threat, Xfinity from Comcast Corporation (NASDAQ:CMCSA) is also attracting a lot of attention. While some of the arguments presented in favor of Comcast and Amazon make sense, such as the larger balance sheets these more well-capitalized competitors have, I still believe these companies lack a lot of what is necessary in order for them to succeed in on-demand-movie-streaming. Another laughable competitor is Google Inc (NASDAQ:GOOG)’s YouTube. I doubt Google would be a serious competitor due to the sheer price difference of renting a single movie on YouTube ($2.99 for a single day, for a single movie), versus the $8.99 a month Netflix, Inc. (NASDAQ:NFLX) charges (for unlimited viewing in a single month, for its whole content library).
Now onto Amazon, Amazon already has low profit margins, according to its 4th quarter earnings release, Amazon’s current profit margin is -.06%. I doubt Amazon would push its way into the movie streaming space at the expense of its shareholders. Amazon’s business empire is being stretched on profitability, and many industry analysts are begging Amazon to cut back on wasteful spending. While I respect and admire Jeff Bezos, I doubt Bezos would be eager to waste shareholder money on its streaming service for much longer. I am more than certain, Amazon will have to make some cuts to its product portfolio, and one of those things will be the Amazon Prime movie streaming.
Comcast generates a profit margin of 9.91%. The company has been able to improve its profitability over the past two years. I doubt the CEO of Comcast would risk being fired by trying to compete directly with Netflix. The Xfinity product package is a higher-end package that’s $30 per month. That’s 4 times the price of Netflix’s streaming service which means that Comcast isn’t looking to operate its Xfinity business segment at larger economies of scale. Comcast’s goal is to turn Xfinity into a predictable source of income. Management is aiming its product offering at a higher-end market, limiting its long-term growth, and stunting the amount of market share it will be able to take away from Netflix. Therefore Netflix will remain the dominant player in the movie streaming space.
Netflix, Inc. (NASDAQ:NFLX) has a well-established brand identity, along with exclusive content rights with Walt Disney. Now I am not sure about you, but Netflix will have the Star Wars trilogy, the upcoming Pixar animations, along with your favorite Walt Disney TV shows like Hannah Montana, and Marvel’s collection of comic book movies! Walt Disney’s content platform, along with Netflix’s strong brand identity keeps Netflix well ahead of the competition. Over-time I anticipate Netflix to operate at even larger economies of scale due to its expansion efforts in foreign markets.
Netflix should be able to sustain tremendous growth as the company has been able to grow its subscriber base at an extremely rapid rate.
Source: Netflix
In quarter 4 2011, the company’s international subscription base had 1.86 million subscribers, in Q4 2012 the company had 6.12 million international subscribers. The growth in subscribers will contribute to the company’s revenue. The increases in viewership statistics, further supports the assumption that Netflix’s international growth is well on track. Netflix’s international viewership grew 229% year-over-year.
Source:
International Telecommunication Union
with the data from 2012-2020 forecasted by Alex Cho
I anticipate that globally the number of internet users will grow to approximately 54.55% by 2020. The estimate is fairly conservative. I assume that Netflix, Inc. (NASDAQ:NFLX)’s potential market size is going to be 3.5 billion (not taking into consideration population growth). Currently Netflix currently has 27.15 million subscribers. Netflix’s global market share is less than 1%. Netflix markets its streaming services for $7.99/month making it a highly affordable alternative for consumers in emerging/developing markets. In summary, I believe Netflix is in the early stages of the product growth cycle. Suppose Netflix were to increase its market share to 10% of its potential market (350 million subscribers), Netflix will then generate $33.6 billion in revenue. Netflix will be able to operate at economies of scale and will grow its subscriber base substantially.
The movie streaming service is still in its growth phase, with analysts on a consensus basis estimating sales growth of 18% for fiscal year 2013. Analysts on a consensus basis anticipate EPS growth of 362% for 2013. Analysts expect a sudden surge in profitability due to cost-cutting initiatives.
The primary growth catalysts involve international expansion, improved content collection and improving profit margins due to price hikes on its streaming services. I believe that Netflix, Inc. (NASDAQ:NFLX) is well positioned to grow in the future, and while the price of the stock is currently $173 and well-above my conservative price forecast of $125.10. I assume that the stock will eventually grow earnings at a rate that will justify a valuation of $200 by 2014. The stock’s upside potential far out-weigh the risks of losing money on a short-term pull-back.
The article Netflix Can’t Be Bothered With the SEC originally appeared on Fool.com.
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