Naturally, investors are worried about competitors in the space, specifically Netflix, Inc. (NASDAQ:NFLX). The company has built a 38-million strong global subscriber base by following its domestic script in its international markets, with a willingness to operate at a substantial loss in order to generate critical mass.
Netflix, Inc. (NASDAQ:NFLX) has also been improving its value to customers though valuable features. The new Profiles function allows individual customers to create personalized “profiles” based on their viewing history or favorite lists, which allows Netflix, Inc. (NASDAQ:NFLX) to provide better recommendations and improve users’ experiences.
In FY 2013, Netflix, Inc. (NASDAQ:NFLX) has been riding its larger subscriber base to better financial results and a sharply higher stock price. For the period, the company has reported increases in revenue and segment operating income of 19% and 46.1%, respectively, versus the prior-year period.
Netflix, Inc. (NASDAQ:NFLX)’s higher segment operating margin, 17.3% in 2013, has been a function of growing its customer base faster than expected. Many customers are probably attracted to the company’s stable of original content, including Emmy-nominated shows House of Cards and Arrested Development. Netflix also continues to leverage its subscriber base to win exclusive deals, like its recent multi-year content agreement with the Weinstein Company that begins in 2016.
Also on the competitor threat list is Amazon.com, Inc. (NASDAQ:AMZN) and its Prime Instant Video service. For $79 per year, the service provides unlimited streaming from its video library, as well as unlimited two-day shipping on purchases and a monthly free book rental from its Kindle lending library. While the company doesn’t divulge Prime-subscriber numbers, a Morningstar report estimated the total at 10 million back in March.
Like Netflix, Amazon.com, Inc. (NASDAQ:AMZN) is trying to increase its value to customers. The company’s Video Finder feature creates recommendations based on a user’s viewing history or list of favorite preferences. In addition, the company is similarly using its size and financial strength to procure original and exclusive content, with recent CBS and PBS deals to be the exclusive online home for its Under the Dome series and Downton Abbey series, respectively.
The bottom line
Investors seem to want to put Outerwall out to pasture, based on expected further declines in its DVD-kiosk business, but they may be missing the point. While the company has moved into the streaming business to protect its DVD-kiosk sales, it really is an automated retailer story with a periodically changing product mix, including its latest foray into used electronics through its ecoATM acquisition. With a low net-debt position and profitable franchises, Outerwall has a favorable risk/reward ratio for investors.
The article Can Redbox Leverage Its Retail Network to Streaming Success? originally appeared on Fool.com and is written by Robert Hanley.
Robert Hanley owns shares of Outerwall, Netflix, and Amazon.com. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix.
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