As Stock Dives, Netflix Subscriber Churn Stabilizing: Bank Survey

A recent report issued by Piper Jaffray’s research team included results from a small survey on  Netflix’s (NASDAQ:NFLX) subscribers, which showed some interesting results regarding their views toward the company. ^[1] While it indicates that customer frustration could benefit potential rivals like Amazon (NASDAQ:AMZN) and Dish Network’s (NASDAQ:DISH) Blockbuster, it also shows that customers aren’t fleeing en masse as the market is currently pricing.

See our complete analysis for Netflix’s stock.

Customer Unrest Is There, But Numbers Could be Biased

The numbers show that about 10% of the subscribers plan to quit Netflix vs. 15% in an August survey by the same firm. ^[1] The decline in the percentage of subscribers planning to quit Netflix could be attributed to two reasons: first, some of the agitated subscribers might have already left, and second, some of the subscribers have had enough time to weigh other options and might have decided that perhaps they want to stick with Netflix. This implies that the churn, or rate of defection, could have actually dropped or stabilized in recent months.

Of course the small sample size could influence the findings and not accurately represent the views of 25 million subscribers; however it nonetheless serves as a rough litmus test on sentiment. Moreover subscribers that are most likely to respond to surveys asking about negative factors relating to defections from Netflix will likely be higher than those that actually quit the service. In other words, the disgruntled customers are the most likely to speak up.

Customers Use Multiple Services, This Could Soften Impact On Netflix

The earlier survey done in August showed that customers are already using other services such as Redbox, Amazon, iTunes and other video rental stores along with Netflix. Given the low cost nature of these services and the varying content that they each carry, no single service can satisfy customers’ demands so they are experimenting with several.

So while we realize that Netlix has upset many of its customers, which we agree is a bad business practice, we still believe that the financial impact to Netflix will be manageable and that the market is underestimating the growth ahead.

Our price estimate for Netflix stands at $195, implying a premium of about 50% to the market price.

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1. Netflix (NFLX): Subscriber Churn Stabilizing – Piper Jaffray, Wall Street Pit, Sept 28 2011 [↩] [↩]