Netflix Subscriber Base Growth Prospects

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Two weeks ago, we discussed the implications of Netflix’s streaming-only offerings in the US and Canada, and the impact these programs could have on the company’s subscriber base. (See Netflix’s New Pricing Plans & Streaming Only Offer) The streaming-only plan, offered at a monthly fee of only $8 in the US, could unlock a large customer base. While the upside is vast, Netflix (NASDAQ:NFLX) must compete for this growing demographic with established cable and satellite operators that offer streaming and pay-TV services like Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV).

Last week, we let the Trefis community weigh in. While our base estimate for NFLX remains well below market value, our readers see upside of roughly 39% to our estimates on accelerated growth to the subscriber base alone.

Trefis Community Forecasts Accelerated Growth…

Beyond growth in streaming-only customers, several other factors contribute to our subscription base estimates. An unsaturated market, for one, will permit ample growth for both Netflix and competitors like Redbox in its traditional rental delivery business. The US alone houses over 90 million pay-TV subscribers and over 100 million households with DBD players, all potential customers.

Still, the most exciting growth prospects for Netflix might be beyond domestic borders. The company piloted a test service in Canada during 2010 and could seek further expansion. Netflix can secure these potential customers through a proven business model that provides convenience to customers alongside an extensive (and still growing) catalog including over 100,000 titles.

While we view our subscriber base forecasts to be indicative of reasonable growth prospects, the Trefis community estimates suggest that we may be a bit conservative. Drag the trend line above to analyze the impact of various growth scenarios, and tell us your viewpoint in the comment box below.

The average forecast of the Trefis community projects an increase from 31 million in 2011 to 60 million by the end of our forecast period. Comparatively, our baseline estimates imply growth from 24 million in 2011 to only 43 million by 2017. Ignoring secondary affects (as mentioned below), the independent impact of the community forecast would increase our price estimate by 39%, although still leaving total value below current market price.

The Flip Side…

While the subscriber base growth potential is exciting, we find it necessary to note the other side of this argument. Should substantial growth come from streaming-only offerings, an increased mix of these low-fee customers could drive down average subscription price as we’ve previously discussed. (See Netflix’s New Pricing Plans & Streaming Only Offer). We currently project a slight decline in average pricing from a current level of about $11 to just under $10 by the end of our forecast period as increased mix of low-priced streaming-only plans is offset by higher-priced DVD rentals.

Our complete analysis for Netflix’s stock is here.

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