Given the uncertainty around Netflix’s (NASDAQ:NFLX) future, which has led to a decline in its stock price, there are a number of possible things that the company may end up doing. Just the other day we wrote how there is a chance that Netflix will ultimately be acquired by a big pay-TV company (see What Is Netflix’s End Game?).
So what else can the company do to ease investors’ doubts?
As far as we are concerned, we see positive growth for the company as the Netflix brand is still appealing and its rival are still not strong enough. However, it might not be a completely bad idea to diversify the business from its pure-play approach presently.
One idea is to branch out to music and move toward becoming a one-stop entertainment shop. Netflix could stream music in addition to movies and thereby enhance its value-add to capture a higher user base. It could include sound-tracks for the movies it streams along with the mainstream music.
With DVDs going down, all that is really left for Netflix in the future is streaming. With competitors sprouting, Netflix can better stabilize itself by branching out. Nevertheless, that carries the risk of brand dilution. Apart from music, Netflix can look at expanding into e-books as well and some of them can go really well with movie streaming, if they are based on similar themes or characters.
Diversification will help Netflix reduce subscriber churn and stay competitive if it can market additional products well and make them an integral part of the entertainment needs of its subscribers.
Our price estimate for Netflix stands at $110, implying a premium of more than 60% to the market price.