Why Should You Buy This Online Streaming Video Company?
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For the first time ever, Netflix (NASDAQ: NFLX) the Online Streaming Video Company surpassed 25 million domestic streaming customers with reported EPS of $0.13 and revenue of $905 million which were above the expectations of $0.05 and $904.89 million respectively. Netflix grabbed a whopping 33% of prime time web viewing based on internet traffic leaving behind its competitors Amazon.com and Time Warner.
With its total market dominance and growth opportunities in the international market Netflix attracted Carl Icahn a billionaire investor who announced acquiring a good 10% stake in the company. According to Carl Icahn the company's stock is highly undervalued. This can be considered a positive sign for the company as after this announcement the company’s stock rose by 22%. At present the stock is trading at ~$82.21.
However, Netflix’s DVD business which accounts for about 90% of its profit came to a halt after the company announced its plans to split its DVD segment and its Streaming services which resulted in an increase in prices compelling some of the subscribers to move away from its services. But this loss in its DVD segment will be offset by the increase in the Streaming Services subscribers.
Netflix might have to face the threat of strong competition from Amazon and Apple with their recent entry into the streaming business. Let’s have a look at how these companies are positioning themselves against Netflix.
Amazon (NASDAQ: AMZN) is Netflix's closest competitor and the company has a past record of offering lower prices to gain a lead ahead of its competitors. When it comes to content the company has around 22,000 titles in its streaming library and further in September it entered into a partnership with Epix adding 2000 more movie titles like The Avengers, Hunger Games and True Grit to its Prime streaming service which brings its total to about 25,000 titles.
In comparison the other competitor Apple (NASDAQ: AAPL) which has entered the streaming business with its deep pockets intends to generate profit with its iTunes. Apple's iTunes is gaining over Netflix as its iTunes video usage increased by 16% in September as compared to 15% in February. Apple, due to its huge selection of titles, will be able to get a higher price than Netflix.
But, in spite of strong competition Netflix has managed to capture the largest share of the alternative paid TV market and looks promising in the future with its growth prospects:
Web Video Market dominance to continue:
Netflix has gained a strategic advantage with its online service and is making efforts to make streaming accessible over television, mobile devices and gaming consoles. In last one year internet usage has doubled over mobile phones and cable lines. The company has positioned itself well against its competitors Time Warner Inc., Amazon.com Inc. and Hulu LLC. At present Netflix has more than 30 million subscribers for its digital service with its availability in 51 countries. According to Network Services and Research Company Sandvine Netflix will maintain a healthy 10 times lead over its rivals through 2014.
Netflix is making international expansion to increase its consumer base. In 3Q12 Netflix added 700,000 new members bringing the total number of international subscribers to 4.3 million ahead of the expectation of 4.2 million. After its launch in Canada, the company has moved to Latin America, Ireland, Scandinavia and United Kingdom with an intention to reach its target of 5.2 million to 5.9 million in 4Q12. Netflix has a conservative outlook for profitability in its Latin American business due to a higher level of piracy and lower device penetration. While in Scandinavia the profitability outlook remains positive due to similar technology, less competition and payment infrastructure characteristics. The company is following a pattern of investing in new markets and gaining global profitability. Soon, Netflix's streaming video service will be launched in the Nordic countries of Norway, Sweden, Finland, Denmark and Sweden.
Summing up, the world's largest video subscription service provider has been immensely successful in gaining its customers’ trust by strengthening the children segment content and also serialized drama. The company has come a long way since its origin in 1997 as at present the company has one of the largest movie subscription services capturing 44% of total online movie business. Netflix’s domestic subscribers also grew 25% Y/Y. And it is making continuous improvements in its personalization technology by recognizing different preferences of different members. Further, Poison Pill will protect the company against hostile takeovers.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Netflix. Motley Fool newsletter services recommend Apple, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!