Hope for the Fallen Warrior

Gargi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Is it possible for a person to be interested in religion, shopping, music, sports, and food all at the same time? If your answer is No, you can very well guess the reason behind the proliferation of the Internet video streaming companies which provide “pay-for-what-you-like” options to entertainment.

The leader in this squad is the long-time player in this industry – Netflix Inc (NASDAQ: NFLX). From a humble start of digital distribution service to offering a wide range of titles on DVD and developing an envious user base, Netflix has sure had its highs.

What gave Netflix its present shape?

Netflix revolutionized the concept of selective entertainment. With a subscription cost of $7.99 a month, it sure provided a much more lucrative offer than the then prevalent cable operators that were charging a whopping $100 a month.

The company has shown exponential growth rising to an all time high of $300 in 2011 as compared to a mere $5.40 start in 2003. However, given the present scenario, Netflix seems to be in troubled waters.

The smaller fish may eat up the whale

With intense competition mounting up in this sector, the other booming companies can sure give Netflix a run for their money.

First on the list is Amazon (NASDAQ: AMZN). With a subscription offer of $79 a year, it has sure managed to dislodge quite a few Netflix loyalists to bring them to its own camp. This plan known as Amazon Prime also includes free shipping incentives and access to a storehouse of thousands of movies/TV shows. If only AMZN were to enrich its content database a little more, the market might see a new leader in place.

Second up, is a growing company called Coinstar (NASDAQ: OUTR) already making its niche as an innovative competitor in the video streaming market. The aggressive growth that Coinstar has shown in recent times surely paints a hopeful picture for the company in the near future. Its strategic team up with Verizon to launch a service called the “Redbox Instant” will help diversify its user network and strengthen its market position.

Netflix jumps up the ladder

Recent turn of events, have caused the company, struggling with losses in the last few quarters, to show a sudden surge in share price. The two factors or rather, the two personalities fueling this surge would be-Mark Mahaney and Whitney Tilson.

Citigroup analyst Mark Mahaney recently upgraded the stock to “overweight” from “equal weight.” His decision is backed by a survey carried out by Citigroup which revealed that customer satisfaction for Netflix has improved roughly 4% since last year. Also, about 40% of people agree that Netflix’ content offerings have improved.

Noted American investor Whitney Tilson, recently professed his faith in Netflix’s hopeful future at the 8th Annual Value Investing Congress. While identifying the challenges ahead for Netflix, Tilson was seen making a direct comparison of it with Amazon. He corroborated his statement by saying that the company had been doing well in having a better debt margin than Amazon did in 2001.

In a place where anticipation of announcements is enough to boost share prices, such strong statements by these two has given the right impetus to Netflix' share price.

Netflix- still a long way to go

Although Netflix has shown a sensational jump of about 35% in a week’s time in lieu of recent market announcements, nothing can be said regarding the company’s future prospects. Trading at nearly $70, and a subscribership of nearly 30 million users, it surely has a stronghold in the market. However tough competition, dwindling profits and marginal growth in users could be serious road blocks in the company’s path to success. If Netflix can use the current market interest to stimulate its own growth, it can sure gain its monopoly in the video streaming market once again. As of now, the battle is far from over.

Compare and Contrast

The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep pocketed, rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These kinds of issues are a must know for investors, which is why The Motley Fool released a brand new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to both buy and sell the stock. They’re also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

Gargi27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus