Will Netflix, Inc. (NFLX) Continue to Grow?

The problem I have had with Amazon.com, Inc. (NASDAQ:AMZN) Prime is that it bundles movie streaming while lowering shipment costs for Amazon shipping. The two are largely incompatible with each other. While I understand that brand extension can work for certain companies (Apple Inc. (NASDAQ:AAPL)), it can also be argued that splitting services into different tiers (International Business Machines Corp. (NYSE:IBM)) can be more effective.

Amazon.com, Inc. (NASDAQ:AMZN) would have to triple the size of its user base to catch up to Netflix, Inc. (NASDAQ:NFLX); the company also has to pay up for both shipping and content costs. Some would argue that the cross-selling may be able to off-set costs, but I don’t really buy that theory, especially when considering Amazon is still unprofitable.

What about Google?

Google Inc (NASDAQ:GOOG) could be a considerable threat to Netflix, Inc. (NASDAQ:NFLX). YouTube recently released a service called paid channels. There are currently 60 channels (a small amount), but when considering the large user-base that YouTube currently has, paired with the amount of cash on its balance sheet, Google could become a serious competitor in the space.

The paid-channels service provided by YouTube has a lot of potential, as the price points for the channels are set at around $5 per month. The problem with YouTube is that the price points for these channels are high relative to what Netflix, Inc. (NASDAQ:NFLX) offers at $8 per month. YouTube is looking to offer an alternative distribution point for traditional TV broadcasting, which could lead to better profit maximization. The companies that could get hurt by this change in distribution are the TV channel providers like CenturyLink, Inc. (NYSE:CTL), Cox Communications, and DISH Network Corp. (NASDAQ:DISH).

Conclusion

The guidance indicates that Netflix, Inc. (NASDAQ:NFLX)’s management team will aim to improve profit margins by lowering the cost of acquiring subscribers. This may send mixed signal to analysts, but with YouTube aimed at a different target market, and Amazon.com, Inc. (NASDAQ:AMZN) far behind in subscriber count, the effects on long-term sentiment should be minimal.

I also believe that Netflix, Inc. (NASDAQ:NFLX)’s content library will remain superior to its competition as long as competitors pay an economically reasonable price for content.

The article Will Netflix Continue to Grow? originally appeared on Fool.com and is written by Alexander Cho.

Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Google, and Netflix. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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