Netflix (NASDAQ:NFLX), which makes money by charging monthly subscription fees to its movie rental customers, can benefit from the shift in consumer preference to renting instead of owning DVDs.
We have a Trefis price estimate of $57 for Netflix’s stock (versus market of $68) and believe there could be additional upside if the shift in consumer preferences leads to a greater increase in Netflix’s subscriber base than we currently forecast.
Netflix’s customers can choose to rent DVDs by mail or stream movies online through its website. We believe that Netflix’s core competencies are in line with media entertainment market trends and changing consumer behavior.
Shifting Consumer Preference from Buying to Renting Movie DVDs
The total film entertainment market, which comprises film rental and retail sales, grew by about 3% from 2006 to 2008. This growth came mainly from the film rental market, while film sales (DVD sales) have remained relatively flat.
We estimate that the share of film rentals in the overall film entertainment market has increased from about 36% in 2006 to 38% in 2008. This visible shift to rentals will benefit Netflix and help it sustain subscriber growth as more households opt to rent rather than own DVDs.
We expect Netflix’s subscribers to grow from nearly 15 million in 2010 to 28 million by the end of Trefis forecast period.
You can modify the forecast below to see how Netflix’s stock can be impacted if the shift in preferences to rentals increases the company’s subscriber base more than we forecast.
For additional forecasts and analysis, here is our complete model for Netflix’s stock.
