It looks like it’s business as usual for Netflix (NASDAQ:NFLX) after it sheepishly announced last week that it’s abandoning plans of separating its DVD-by-mail service, Quickster. While the rationale of the move to split streaming and DVD businesses is debatable, the recent events are reflective of a management that is hasty in its decision making. And it clearly saw wrath from investors and subscribers alike, which led to a slump in shares. Dish Network (NASDAQ:DISH) which is aggressively promoting its Blockbuster service earlier took a dig at Netflix saying they’re offering the simplicity of “one company, one bill, and one connection unlike other companies.” [1] While disgruntled customers and mounting competition from Dish and Amazon (NASDAQ:AMZN) may have caused the company to change its mind, the move is also an attempt to appease investors ahead of its upcoming Q3 earnings release on October 24.
Meanwhile Netflix is continuing to sign more content deals, the latest being the Norwegian-produced TV show Lilyhammer, Dreamworks Animation, and Time Warner (NYSE:TWX) and CBS (NYSE:CBS). Despite some unthoughtful moves, we are optimistic about the company’s long-term growth and expect its subscriber numbers to grow reaching 40+ million by the end of our forecast period.
Our complete analysis for Netflix’s stock is here.
Netflix Brings More Content to Subscribers
After the announcement to kill its Quickster plan, Netflix is busy doing more content deals. After gaining exclusive rights for Norwegian-produced TV show Lilyhammer, Netflix recently signed a $1 billion deal with Time Warner and CBS to add CW Network to its streaming service. (Read: Netflix’s Stock Continues Recovery post-Qwikster with Content Deals) This indicates the company’s earnestness to leave its past behind and focus on the future by offering more quality content, gaining more subscribers, and furthering growth in the coming years.
Subscriber Churn A Concern for Q3
Last month in its revised guidance Netflix lowered its US subscribers forecast by 1 million to 24 million users. [2] This revised guidance could have come on the heels of subscriber churn or/and a slowdown in new subscriber acquisitions, [3] something we’ll have more color on in the upcoming release.
However, as Netflix continues to sign exclusive, multi-year deals with leading media companies and given its good performance historically, we are confident that the company’s future outlook is strong.
While we estimate the number of Netflix’s US subscribers will increase from 28.3 million in 2012 to 41.3 million by the end of our forecast period, Trefis members expect an increase from 26.2 million to 36.4 million during the same period. The member estimates imply an downside of 8% to the Trefis price estimate for Netflix’s stock.
We currently have a Trefis price estimate of $195 for Netflix’s stock, about 83% above the current market price.
Understand How a Company’s Products Impact its Stock Price at Trefis
- DISH, Blockbuster Announce $10/Month Alternative to Netflix, PCworld, Sep 23, 2011 [↩]
- Netflix Lowers Q3 Forecast By 1 Million Subscribers & Investors React, HackingNetflix, Sep 15, 2011 [↩]
- Netflix’s Q3 Subscriber Loss Could be Churn AND Acquisition Related, Videonuze, Sep 15, 2011 [↩]
