Amazon Is About To Rain On Netflix’s Parade With Original Content
Amazon (NASDAQ:AMZN) is following Netflix’s (NASDAQ:NFLX) lead in creating original shows to differentiate its streaming service, Amazon Prime. [1] It appears that this strategy may be adopted across the board by online streaming providers, and the conflict with pay-TV companies is not going to be Netflix’s sole problem. What this also means for Netflix is that its content advantage that comes from having original and exclusive content will be diminished slowly.
See our complete analysis for Netflix
For Amazon, the incremental value add as a result of growth in subscriptions to its Amazon Prime service is limited as the company derives a huge amount of value from its online retail business. However, the adverse impact on Netflix resulting from Amazon’s growth in this regard could be substantial given the sensitivity of its stock to subscriber growth and content costs.
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We estimate that close to 60% of Netflix’s estimated $110 stock value is hinged on our expectation that Netflix will have close to 40 million subscribers by the end of our forecast period. If that doesn’t happen and the subscriber base grows to only 30 million, there could be a 15% downside to our current price estimate.
Our price estimate for Netflix stands at about $110, implying a premium of about 60% to the market price.
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Notes:- Amazon gets into content business with 4 original TV shows, venturebeat.com, June 24 2012 [↩]