Despite a downward trend in Netflix’s (NASDAQ:NFLX) average monthly subscriber fees, the company’s stock has rocketed upwards, driven by rapid growth in its subscriber base. We currently have a Trefis price estimate of $106 for Netflix’s stock, about 38% below the current market price of $170.
Netflix’s ascent will put pressure on pay TV providers like Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV) that provide video-on-demand or pay-per-view services that compete with film rental services (Netflix, Redbox, Blockbuster).
We currently estimate that the company’s subscriber will exceed 40 million by the end of our forecast period. The average of Trefis member forecasts suggests that Netflix’s subscriber base will be even higher, implying upside to the Trefis price estimate of about 25%. We discussed in an earlier article that, based on our analysis, Netflix’s subscriber base needs to exceed 70 million to justify the current market price.
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Netflix’s subscriber base was only 1.5 million in 2003 and we expect it to exceed 19 million by the end of 2010. This is equivalent to 17% of the estimated 116 million US TV households in 2010. Furthermore, the company is expanding beyond the US. Netflix recently introduced its streaming-only service in Canada and we expect the company to enter new international markets in the coming years.
The average of forecasts for Netflix Subscribers created by Trefis members indicated a projected increase from 26.4 million in 2011 to 54.8 million by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from 24.1 million in 2011 to 43.2 million by the end of the Trefis forecast period. The member estimates imply an upside of about 25% to the Trefis price estimate for Netflix’s stock.