Video Asylum

Posted by Ross (A) on December 05, 2011 at 06:50:09

In Reply to: RE: The Future of Netflix posted by Condorsat on December 04, 2011 at 10:18:33

$250+ stock price was based upon the exponential growth of the company over the past few years, and the success of migrating customers to streaming from hard delivery. For the past 5yrs, their cost to stream video was locked in at very low rates and each customer that streamed instead of receiving a disc literally multiplied the cos profit margins by 2-300%.

4 issues have beaten down the stock price:

1)horrendous management of their new 2 tier pricing model
2)expiration of existing streaming rights contracts and subsequent renegotiation at a much higher cost to netflix
3)competition
4)significant slowdown in the rate of new subscriber growth

That said, Netflix is still a viable company. Ironically, since they are number 1 in the field and the stock has come down so much, they are now a takeover candidate. They generate huge amounts of cashflow and have an extremely large customer base that would be very attractive to other companies seeking to cross-sell.

Netflix management was very smart to ensure that just about every new flat screen tv, Blue Ray player, tablet computer and game box includes Netflix connectivity. Only exception is the iPad and I believe it can be hacked to access Netflix. If the delivery system is already in your room, it becomes very convenient to click and stream at $7.99 per month.

Price may drop further, but we are getting close to the point where the company is attractive from a valuation basis.

When the new pricing model was announced, we downgraded to a streaming only account and haven't looked back. Every time I log in I see more and more current content available for instant streaming. Bottom line is we saved money and got what we wanted.

Best,

Ross