Rupert Murdoch’s Worry Over Netflix And Amazon Is Valid
Rupert Murdoch, the chairman of 21st century Fox, recently made a statement that the media industry must answer to the competitive threat posed by online streaming companies such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). There is a lot of value to what he said, and considering the recent moves from HBO and the increasing growth and traction of these streaming companies, the appeal subscriber rates of the traditional pay-TV industry are increasingly under pressure. The possibility of Netflix and Amazon dominating the video streaming market could result in reduced negotiating leverage for media houses. It is going to be a battle for content distribution between traditional pay-TV providers and online streaming companies, and on the surface it appears that content owners stand to gain. However, if there is mass exodus of consumers from pay-TV to Internet for media consumption, the monopolistic effect of the duo (Netflix and Amazon) as well their relatively low revenue generating capacity can ultimately be detrimental for content companies.
Our price estimate for Netflix stands at $300, implying a discount of about 20% to the market.
See our complete analysis for Netflix
- Up 27% Year To Date, Will Q1 Results Drive Netflix Stock Higher?
- Netflix On A Roll As It Benefits From Paid Sharing And Ads. Is The Stock Undervalued At $610?
- Up 50% Over Last Year, Will Q4 Earnings Drive Netflix Stock Higher?
- Will Netflix Stock Rally 40% To Return To Pre-Inflation Shock Highs?
- How Will The Password Sharing Crackdown Help Netflix Q3 Results?
- Will Netflix Stock Return To Pre-Inflation Shock Highs Of Over $650?
The story of Netflix’s impressive growth can be seen by drawing a simple chart of its cumulative subscriber base. The slope of the curve is not visibly moderating yet. This indicates that the company’s domestic business may still be far from saturation. Netflix has grown its domestic streaming subscriber base phenomenally over the past few years and we expect the figure to reach 39 million by the end of this year. This can be attributed to the improvement in content library, push for original programming and penetration across multiple devices. However, if the next two to three quarters show the continuation of what happened in Q3 2014, Netflix’s business could reach near the top of the S-Curve, which essentially represents the maturity phase of business life-cycle. Netflix added a little less than 1 million subscribers in the U.S. in Q3 2014, as opposed to its earlier expectation of 1.33 million. This was a significant miss, and resulted in about 20% drop in the stock price in the after-hours trading. Netflix’s business may be at a critical juncture, and may swing either way. But this is no reason for the competitors to relax.
Original programming such as that of HBO and sports are a few reasons why people still choose to keep their cable subscription. Netflix and Amazon both are making a big push for original programming, and may ultimately become a hub for most of the content that’s shown on TV today.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap