Netflix’s (NASDAQ:NFLX) stock fell more than 10% on Tuesday after EPIX announced its streaming partnership with Amazon (NASDAQ:AMZN). According to the new deal, Amazon will get around 3,000 movie titles from EPIX, enhancing its streaming catalog significantly. Netflix’s stock continues to go down with each new step taken by its competitors. This implies that the company is in a very fragile situation and, if its international ventures don’t churn profits soon, the stock may continue to remain suppressed.
The domestic streaming market is getting increasingly competitive. Almost all of Netflix’s competitors are well-established players with strong spending capability. Interestingly, none of these competitors have streaming as their core business. Amazon makes money from online retail sales; Dish Network (NASDAQ:DISH) and Comcast (NASDAQ:CMCSA) from pay-TV and broadband services; and Verizon (NYSE:VZ) from wireless and landline operations. Each of these competitors may be willing to bid high enough, not necessarily to keep streaming profitable but to help attract and keep the customers loyal to its primary business. This is where Netflix’s problems lie as the company depends entirely on streaming.
Netflix is still significantly ahead of Amazon in terms of total streaming title count and is still, by far, the best streaming service in the U.S. However, the stock price fall is hinged on the strength of emerging competitors and, if things get worse, Netflix’s best bet might be to get acquired. A lot depends on how quickly it can turn international operations profitable.
Our current price estimate for Netflix stands at $96, implying a premium of more than 60% to the market price. Our thesis is centered around Netflix’s lead in streaming domestically and its international prospects.