Netflix Customers Are Slowly Returning Despite The Media Frenzy Against It

NFLX: Netflix logo

Netflix’s (NASDAQ:NFLX) management recently stated during a JP Morgan (NYSE:JPM) Technology, Media and Telecom Conference that many of the new subscribers that are joining Netflix now are the ones who disconnected the service during the past 12 months. Last year, as a result of the price increase and the announcement on re-branding of its DVD service to Qwikster, Netflix suffered significant subscriber backlash. This led to a net subscriber loss in Q3 2011 and only a mild subscriber gain in Q4 2011. The latest statement regarding the subscriber return has a couple of implications.

See our complete analysis for Netflix

First, Netflix’s business is very sensitive and unstable. Despite great utility, it is not indispensable and customers will leave if the service suffers even slightly – be it in terms of price or content. However, just as quickly as the subscribers can leave, they can come back too. Although this gives little room for error, Netflix should make use of this fact to accelerate subscriber gains in the near term when it still has the content advantage over other streaming companies and with no other viable options available to customers. Hence, the next 12 months will be critical for Netflix, and it is likely to spend significantly on content and improving its user interface to enhance its overall service.

Relevant Articles
  1. Is Netflix Stock’s Post Earnings Sell Off An Opportunity To Buy?
  2. Company of The Day: Netflix
  3. Is There A Better Pick Over Eli Lilly Stock?
  4. With Expectations Low, Can Netflix Spring A Q1 Surprise?
  5. What’s Happening With Netflix Stock?
  6. Company Of The Day: Netflix

Second, it also shows that many customers might have been influenced by negative media coverage and a vocal minority. A parallel can be drawn to AT&T (NYSE:T) in this regard. In the past few years, some active Internet users have been quite vocal about AT&T’s service in a negative way. Despite that, the company’s network performed reasonably well in some third party tests and it has continued to gain subscribers at a healthy pace. Netflix has the potential to recover as the effect of the recent negative media coverage and bashing comments dials down.

Our current price estimate for Netflix stands at $110, implying a discount of little over 50% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis