Expectations for Netflix’s Costs In Line with Trefis Forecasts

-17.39%
Downside
607
Market
502
Trefis
NFLX: Netflix logo
NFLX
Netflix

Netflix (NASDAQ:NFLX) competes with pay-TV providers like Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH), DirecTV (NASDAQ:DTV) and Time Warner Cable (NYSE:TWC) to acquire the latest film and TV content for its subscribers. We currently have a Trefis price estimate of around $85 for Netflix’s stock, about 28% below the current market price of $118.

Trefis members have created forecasts for two key drivers of Netflix’s stock over the last week: (1) DVD Shipping Center Costs (As % of Revenues) and (2) CapEx As % of Gross Profits. The members’ forecasts suggest that DVD Shipping Center Costs (As % of Revenues) and CapEx As % of Gross Profits will trend roughly in line with Trefis estimates.

Netflix’s stock is quite sensitive to (1) DVD Shipping Center Costs (As % of Revenues) and (2) CapEx As % of Gross Profits. Below are charts showing recent estimates created by Trefis members for the two drivers in detail.

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1. DVD Shipping Center Costs (As % of Revenues)

The average of forecasts for DVD Shipping Center Costs (As % of Revenues) created by Trefis members indicated a projected decrease from around 9.2% in 2010 to 8.9% by the end of the Trefis forecast period. In comparison, Trefis expects the costs to be constant at around 9.2% over the Trefis forecast period. The member estimates imply little upside to the Trefis price estimate for Netflix’s stock. In the past, DVD Shipping Center Costs (As % of Revenues) has decreased from around 11% in 2004 to around 10% in 2009.

Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Netflix’s stock to DVD Shipping Center Costs (As % of Revenues).

Our complete analysis for DVD Shipping Center Costs (As % of Revenues) is here.

2. CapEx As % of Gross Profits

The average of forecasts for CapEx As % of Gross Profits created by Trefis members indicated a projected decrease from 7.6% in 2010 to 7.3% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of a decrease from 7.6% in 2010 to 6.9% by the end of the Trefis forecast period. The member estimates imply a downside of 1% to the Trefis price estimate for Netflix’s stock. In the past, CapEx As % of Gross Profits has increased from around 5% in 2005 to close to 9% in 2009.

Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Netflix’s stock to CapEx As % of Gross Profits.

Our complete analysis for Netflix’s stock is here.