Netflix (NASDAQ:NFLX) added 3.3 million net subscribers for Q1 2011, up by 94% compared to same period last year, marking its highest growth rate so far.^[1] The growth mainly came from the marketing efforts taken up by Netflix for which it incurred a whopping $104 million, an increase of 39% from last quarter. The rising advertising and marketing expenses clearly suggests that Netflix is striving to maintain its turf in a competitive landscape with players like Apple’s (NASDAQ:AAPL) iTunes, Hulu, video on demand (VoD) providers like Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) and Google (NASDAQ:GOOG). We believe that continuously updating content will be crucial for Netflix to maintain its subscriber growth rate.

While we expect Netflix’s total subscribers will reach approximately 63 million by the end of our forecast period, Trefis members predict the total number of paid subscribers will reach close to 72 million. The member estimates imply around 15% upside to our $153 price estimate for NFLX stock.

Attractive Content to Drive more Subscribers

The growing acceptance of Netflix as an alternate medium (or “rerun TV” as called by Netflix) for watching TV shows and movies has significantly boosted the company’s market position. The growing number of subscribers indicates that customers find Netflix content attractive, and hence maintaining the quality and vastness of content becomes crucial for the company. With strong subscriber additions and revenues, Netflix is getting more support from content owners and is also able to pay big amounts for the content provided. (See Netflix Riding a Positive Feedback Loop) After next month, Netflix customers will get access to a range of Miramax movies, as per the deal signed with the production house.^[2]

Competition Will Only Heighten

Netflix continues to face competition from Hulu Plus and Amazon Prime in online video streaming market while Dish Network is likely to launch a subscription streaming business at some point under under its Blockbuster brand.

Also Google recently announced that it has doubled its movie title count on YouTube to 6,000, on top of an already large number of free and paid titles. Compared to Netflix’s approximate 23.6 million subscribers, YouTube’s user count of close to 500 million points to a vast market opportunity – suggesting direct competition between the two in the future. (See Should Netflix Worry About YouTube?)

Our complete analysis for Netflix’s stock is here.

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