Amazon.com, Inc. (NASDAQ:AMZN) is using its Amazon.com, Inc. (NASDAQ:AMZN) Prime as an entry-point into the movie streaming business. But without exclusive contractual agreements with Disney and Time Warner (which Netflix has), I see no long-term business opportunity from the movie streaming business for Amazon.com, Inc. (NASDAQ:AMZN). While I acknowledge that Jeff Bezos is a talented CEO and his corporate vision is what caused the company to grow to this point, I highly doubt that the online retailer will waste any money trying to woo the remaining content creators onto Amazon Prime.
Amazon Prime would serve shareholders better by being a “club membership package”, similar to Costco Wholesale Corporation (NASDAQ:COST)’s card membership program. Instead, Amazon.com, Inc. (NASDAQ:AMZN)’s ambitiousness, while good, is also harmful to its customers. The money Amazon wasted on buying movie content rights could have been better spent on pass-on savings to customers (discounts).
Instead, I’m left with an Amazon.com, Inc. (NASDAQ:AMZN) Prime that gives me movie streaming privileges rather than an added discount on my online purchases. Awkwardly enough, Amazon.com, Inc. (NASDAQ:AMZN) generates (0.06)% profit margins, and could improve those margins by re-focusing capital on business initiatives outside of movie streaming.
Netflix remains hot
Netflix, Inc. (NASDAQ:NFLX) has difficulty with giving out guidance beyond a quarter. Don’t blame them; guidance beyond a quarter isn’t likely to be that accurate as its growth is affected by a lot of external and internal factors. Netflix expects revenue streaming to grow to $665 million in the second quarter, along with profit of $139 million (from the United States). International streaming is likely to have 7.3 to 7.9 million members (really broad range), with revenue at around $156 to $170 million in the second quarter.
Netflix expects EPS at around $0.23 to $0.48 per share. I’m expecting Netflix to generate EPS figures towards the higher end of the range. EPS in the first quarter came in at around $0.05 per share, so, assuming Netflix is able to grow EPS to $0.48 per share, quarter-over-quarter earnings growth would be around 860%.
Conclusion
Netflix has been able to sustain its growth even without the content additions coming into full effect from Warner Brothers and Disney (Netflix gets exclusive content rights starting in 2016). So, in the meantime, Netflix is still able to post some strong revenue and net income growth without Disney. What would happen if Netflix were to receive its content from Walt Disney? No one really knows the full effect, but I could imagine Netflix raising the prices of its streaming service in 2016 once Netflix is able to secure Walt Disney’s and Warner Brothers content library.
We don’t have to look far out as 2016 to be optimistic on the stock. Analysts anticipate fairly strong growth: EPS estimates are coming in at around $1.32. EPS growth is estimated at around 355.20% for 2013. Netflix’s guidance implies that quarter-over-year EPS may grow 800%, implying that Netflix will be able to report growth that’s substantially higher than the consensus estimates for the fiscal year.
Netflix’s core competencies in movie streaming shouldn’t be questioned. The improving financial condition is firing up the bulls. Investors have to stay the course with this high growth stock. It would be foolish to jump-off the gravy train now.
The article A Few Reasons Why You Should Buy This Stock originally appeared on Fool.com.
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