Netflix Inc.NFLX

Stock Research and Analysis

by Larry Witt, CFA

Netflix has attracted millions of subscribers and remains the leading player in the market for DVD rental by mail. Although larger competitors and disruptive technologies may pose a threat over the long run, we think Netflix can expand its subscriber Read more

Bulls Say

Netflix enjoys a 20% household penetration rate in its oldest region, the San Francisco Bay area. In most of its other regions, penetration rates are still below 10%, a possible sign that the company has a lot of room to expand.

As the ratio of new to existing subscribers declines, the cost of acquiring customers as a percentage of revenue will decline, and the business could scale nicely.

Netflix is investing in the digital delivery of movies. Subscribers can currently watch about 12,000 titles via the Internet. Netflix is also developing solutions to deliver digital movies to any television connected to the Internet. Read more

Bears Say

The entry of Blockbuster into mail rental forced the company to offer lower-priced plans. If another rival emerges, Netflix may have to endure further price cuts and increased advertising expenditures.

Disruptive technologies, including video on demand and Internet download, could pose a serious threat to Netflix. If the firm cannot develop a superior digital solution, its future may be in jeopardy. Read more

Strategy

Netflix lowered its prices to match Blockbuster's price points to stem the flow of subscribers to its largest competitor. The company now offers its customers a limited number of movies via Internet Read more

Management

Reed Hastings founded Netflix in 1997. He owns about 6% of the company and currently serves as chairman and CEO, roles we believe should be split. Collectively, all directors and executive officers own about 25% of the company, which we believe is sufficient Read more

Profile

Netflix has more than nine million subscribers to its DVD-rental-by-mail service. For a monthly fee, subscribers can have between one and four movies out at a time, depending Read more

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