Amazon and Verizon to Throw a Wrench in Netflix’s Streaming Plans
Last week has shown that while there are hopes of expansion in international markets, the online movie streaming company Netflix (NASDAQ:NFLX) will face more competition in the U.S. Following Verizon’s (NYSE:VZ) announcement of forming a joint venture with Redbox to launch its own streaming service, Amazon (NASDAQ:AMZN) seems to be planning a stand-alone video streaming service. [1]
So far its video streaming service was a free add-on for customers who subscribed to its Amazon Prime service that makes them eligible for free shipping in turn for an annual subscription fee. If the service becomes stand-alone, it would imply more money being pumped in for content. This could pose some serious trouble for Netflix and slow its subscriber growth in future.
Our price estimate for Netflix stands at $133, implying a a premium of about 10% to the market price.
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On the other hand, international prospects look good. U.K’s major pay-TV service provider Virgin Media has stated that the company is talking to several video-streaming service providers to add TV shows and movies to its TiVo recording service. ((Virgin Media in Talks to Add Streaming Video to TiVo, CEO Says, Bloomberg, Feb 8 2012)) This includes Netflix as well and might help the company expand more smoothly in this new geography. Moreover, Netflix seems to be exploring entry into Russian market according to a report. The international opportunity is huge and Netflix can begin expanding to other international markets in later half of 2013.
Overall, the era of self-made troubles is over and the company will now need to demonstrated good business acumen to beat its competitors. We think that stock is more or less near it fair value and high growth in the stock from this point is unlikely given the increasing content costs and developing competition.
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Notes:- Is Netflix Ready for Another Challenger?, Daily Finance, Feb 8 2012 [↩]