Netflix’s DVD Business Declines Aren’t A Big Deal
Netflix‘s (NASDAQ:NFLX) DVD subscription business has been on a down-slide for a while due to a broader change in digital video industry dynamics, the increasing popularity of online streaming and Netflix’s decision to separate its DVD and streaming plans. The company’s DVD subscription revenues have declined by close to 80% over the past six years, with most subscribers migrating to streaming subscription-only plans. Below we explain why these declines aren’t a big deal for Netflix.
Our price estimate for Netflix stands at $181, which is slightly below the current market price. Take a look at our interactive breakdown of Netflix’s DVD business and the downside scenario to learn more.
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It is unlikely that Netflix subscribers will gravitate back to the DVD business given the general shift to streaming services, triggered by the availability and wide variety of content over different devices and improving Internet speeds. We expect Netflix to continue to lose DVD subscribers, which, in turn, will translate into a significant decline in its DVD revenues by 2024. Looking ahead, while we expect its total DVD subscribers to decline by 2 million over the next seven years, we estimate an incremental increase of 89 million users for its streaming (international and domestic) businesses, which will obviously more than make up for the lost DVD revenues.
Overall, we expect Netflix’s DVD business to lose a total of $192 million in revenues over the next seven years, while we forecast its streaming subscription business to see an incremental $16.5 billion in revenues on a cumulative basis over the same timeframe.
Even if the company were to lose all of its DVD subscription revenues over the next few years, there would be a minimal impact on our valuation estimate for Netflix given the relative lack of importance of the DVD business going forward. In that downside scenario, our estimated valuation for Netflix would decline from $80.9 billion to $80 billion or just over a 1% downside.
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