Netflix Confident in Recovery but HBO Could Spoil the Party
Source: Google Finance
Although Netflix’s (NASDAQ:NFLX) stock didn’t move much last week, the company’s CEO attended the UBS media conference and outlined his beliefs regarding the company’s ability to bounce back and provided his assessment of the developing competitive landscape. It was interesting to know that Netflix now sees Time Warner’s (NYSE:TWX) HBO Go service to be one of the prime competitors, apart from Amazon (NASDAQ:AMZN) and Blockbuster. Below we take a quick look at last week’s developments.
See our full analysis for Netflix
Hastings Confident About Recovery
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The company’s CEO has stated that despite the recent troubles, the company will be able to recover. However he does indicate a longer time frame of few years which suggests that the stock may not not gain favor from the investment community any time soon. [1] It is perhaps the international expansion opportunity that stands as the supporting factor behind the CEO’s confidence.
We believe that the potential opportunity could be large and that in its efforts to position for these opportunities, it overlooked its customers’ in the process. Netflix can gain from this ‘huge potential’ as long as it doesn’t blind the company against the very basics of the business such as customer satisfaction.
HBO Go A Key Competitor
Interestingly, the company highlighted that it sees HBO Go service as a key competitor. [2] In many ways the services are similar, laden with content and allowing subscribers to stream to multiple devices. The difference is that HBO specializes in movies and Netflix is a hybrid of both movies and TV shows. Nevertheless, both services are likely to compete for the best content where HBO has a clear edge right now.
This brings up an interesting point. The competition from Netflix will not just arise from direct competitors like Blockbuster and Amazon Prime, but it will also grow from different directions. HBO Go is one example while Verizon’s (NYSE:VZ) plans to launch a streaming service and cable companies launching their own streaming applications serve as others.
U.S. Postal Cuts Will Affect Netflix
The U.S. postal service has announced that it will be cutting down on first-class mail services and raising prices from March 2012 in order to cut costs. This will have direct impact on Netflix’s DVD business. Although the number of DVD subscribers have come down significantly in 2011, it still stands at more than 10 million. Netflix will need to figure out a way to deal with reducing its mail services without too much disruption to the customer experience. Perhaps the company will need to tie up with courier services that could lead to increased costs for this segment.
Our price estimate for Netflix stands at $142, implying a premium of more than 100% to the market price.
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Notes:- Humbled Netflix CEO still thinking, talking big, Yahoo News, Dec 7 2011 [↩]
- Netflix chief sees big rival in HBO Go, MarketWatch, Dec 6 2011 [↩]