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Below are key drivers of Netflix's value that present opportunities for upside or downside to the current Trefis price estimate for Netflix:
Netflix's U.S. Streaming Subscribers: Currently we forecast Netflix's U.S. streaming subscriber base to increase from around 70 million in 2020 to more than 85 million by end of our forecast period. There could be more than 10% downside to our price estimate if this figure remains below 70 million instead. This could happen if the market growth for streaming slows down, and competition weighs heavy in the future. On the other hand, there could be around 10% upside to our price estimate if Netflix blows past expectations, and captures well over 100 million U.S. subscribers.
Domestic Streaming Contribution Margin: Currently we forecast this figure to rise from about 41.3% in 2019, to close to 50% by the end of our forecast period. However, there could be a downside of about 10% to our price estimate if the margin was to decline to 30%. On the other hand, there could be upside of about 10% if this figure was to increase to over 60% instead.
For additional details, select a driver above or select a division from the interactive Trefis split for Netflix at the top of the page.
Netflix offers video rental service in the form of DVDs, as well as online streaming to U.S. customers. The company also offers streaming services in international markets and is currently available in about 190 countries.
Netflix's content is available for streaming through a variety of devices such as PCs, Macs, video game consoles, tablets, and smartphones. The company is consistently working toward striking more content deals in order to improve its online library.
In the case of DVDs, Netflix's customers can choose the videos they want to rent from an online library available on the company's website. Unlike traditional video rental businesses, such as Blockbuster and Redbox, Netflix does not have any store locations and instead delivers DVDs through the postal mail.
The majority of Netflix's value is currently hinged on its U.S. Streaming services for the following reasons:
Firstly, the DVD subscribers are expected to decline significantly in the U.S., while streaming subscribers are expected to grow. The home video market is growing in the U.S. and streaming is the best way to tap into it given the proliferation of multiple internet-enabled devices. Netflix has seen rapid adoption of its streaming plans in the U.S. Although the competition is intensifying, Netflix remains a leader in the streaming segment.
Secondly, the international streaming business is currently a relatively lower value contributor, but this is expected to change in the future as the US streaming market becomes saturated. Netflix has expanded into more than 190 countries.
There is a very clear shift of video consumption to the Internet, and Netflix is one of the companies leading this change. The company's DVD subscribers are declining and future growth will come from streaming subscribers. Eventually, the company would like to replace all of its physical DVDs with the online library.
Netflix has been rapidly rolling out its service into new markets and has seen a strong uptake in those markets. We expect that to continue going forward. The company now has a presence in more than 190 countries.
Netflix has been facing increasing competition in online streaming. Along with Amazon and Hulu, there are more and more streaming options from companies such as CBS, HBO, Disney+ and Apple.
Netflix’s original content has improved the perception of the overall brand. The company’s original programming has garnered critical acclaim by scoring many award nominations in recent years, including House of Cards, Orange is the New Black, The Crown, the Stranger Things series, to name a few. Netflix has effectively marketed these exclusive shows to maintain its subscriber momentum.