Netflix, Inc. (NFLX) Stock: Are Recent Gains Sustainable?

Increasing competition

Let’s not forget that Netflix is still not profitable in the international markets; thus, the entire stock value pivots around its success in the U.S. The overall market growth in the U.S. will eventually slowdown. Additionally, rising competition in the U.S. market will make it hard for Netflix to add new subscribers.

Going forward, I expect the increase in competition to take a toll on Netflix’s margins, as the company will attempt to retain its current subscriber base by offering relatively cheaper streaming services.

Netflix faces a stiff challenge in the U.S. market from Amazon.com, Inc. (NASDAQ:AMZN) . At present, Amazon is slightly behind Netflix in terms of content offerings; however, it is expected to narrow the gap in the future.

Amazon generates the highest percentage of its revenue through electronic and general merchandise at around 55%. This is followed by books, music, DVD and streaming services collectively at around 33%.

According to the projections offered by Trefis, Amazon’s online books, DVD, music and streaming-services division presently holds a 25% market share. However, it may increase to 28% with its growing presence in China, Japan and Brazil.

Amazon’s current stock price trades at around 90% of its 52-week high. It has a market cap of $116 billion, and the revenue reported during the previous fiscal year stood at around $61 billion.

Similarly, Netflix faces an increasing threat from Comcast Corporation (NASDAQ:CMCSA)’s Xfinity Streampix. The online streaming service can be integrated into Comcast’s current pay-TV package on subscriber’s discretion. The service seems well positioned to create holes in Netflix’s current subscriber base, as it only costs $4.99 per month.

During Q2 fiscal 2012, Comcast announced that it had made conscious efforts to double the number of titles available for its streaming services. This is indicative of its purposeful initiative to improve and offer better streaming content.

Comcast generates highest percentage of its revenue through cable-TV subscriptions, followed by NBC & Comcast Content and broadband Internet. It has a market cap of $109 billion and the current share price trades at around 96% of its 52-week high. Going forward,  Xfinity Streampix’s market share growth will heavily depend on the quality of content it offers.

Conclusion

I believe Netflix’s stock price is reflective of its success in the US. Nevertheless, the company must exhibit rapid improvement in earnings from international markets or else its stock may not be able to sustain its current levels in the long run.

The article Is Netflix’s Recent Stock Surge Sustainable? originally appeared on Fool.com.

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