Netflix (NASDAQ: NFLX) is unstoppable! It's gaining millions of new subscribers each month (I am one of the 20 million subscribers) who are attracted to the wildly popular $7.99 a month subscription for unlimited streaming of over 20,000 TV shows and Movies. There is no other game in town which can beat this! Amazon.com is poised to offer a similar streaming service (strong rumors), for a flat $79 a year fee that includes Amazon Prime membership. This could sway subscribers to Amazon, or better yet create a healthy choice for consumers which can only expand the market further. Apple is selling movies and TV shows by the drink on iTunes. Would Apple change it's business model and offer a monthly service? This is not feasible, since it will decrease the iTunes sales in the short term, and Apple will need to explain this to the share holders. However, in the long term, Apple would love to have all these subscribers. May be, just may be, Apple will buy out Netflix, or Hulu, an upcoming, worthy challenger. "Hulu Plus, the video subscription plan that charges $8 a month to watch a range of TV shows online, will have 1 million paying customers this year and post annual revenue of more than $200 million, according to Hulu's chief executive Jason Kilar, in a blog post." Hulu still has ways to go; however, it has huge help from Disney, Comcast, NBC, News Corp and Viacom (latest partner).
Take a look at what Whitney Tilson says in his article on Seeking Alpha:
"Of course, any company can goose its margins and profits in the short term by slashing marketing spending, but this usually triggers a fall-off in sales and customers. Yet this didn’t happen to Netflix: in Q4, the number of paid subscribers jumped by 2.4 million to 18.3 million, up 53.5% year over year and 15.2% sequentially, both the highest levels going back more than four years. Subscriber growth isn’t merely high, but it’s accelerating. Such a large gain in subscribers fueled at 34.1% year over year jump in revenues, the highest percentage gain since Q1 07.
This surge in subscribers and revenues is creating a virtuous cycle for Netflix, both in terms of word-of-mouth buzz (which is, of course, the best – and cheapest – form of marketing) and financially."
Customer Survey Comments:
"The most commonly cited explanation by the Netflix customers in our survey for their increasing usage and overall satisfaction is that they appreciate the easy-to-use, widely available service and perceive good value. For a low monthly price – typically $7.99 or $9.99, less than the cost of a single movie ticket and a tiny fraction of their cable bill – they can have unlimited access to nearly 20,000 movies and TV shows. "
"Needs more & better content, but everyone knows that!
I believe we get what we pay for.
Not enough selection and not enough updates. Still great convenience & video quality.
I can watch what I want, when I want, for a price I can afford.
Great value, simple, problem free, no advertising.
Easy to use, good selection, and getting better all the time. It’s the best deal out there, even with the recent price increase.
Streaming itself is great. The library of streamable choices is lacking, especially for movies. Once you get hooked on a TV show Netflix carries, though, the streaming is awesome!
I’m not married to Netflix. I would easily switch to a carrier with the fastest and widest selection of titles. The flip side is I haven’t tried other services because Netflix is easy. I’m not a tech expert and don’t even know what Hulu does.
Good product at good price. Online quality is much better than I expected. Lots of kids content to stream (don’t need the latest). Netflix finds TV shows that I may like but did not know existed and/or would not rent as DVDs. Have gotten rid of the expensive cable bill as a result"
Bottomline:
Netflix is a WOW! product, a great example of business model and product innovation. It's on a hyper growth drive, one which can easily catapult the subscriber base to over 40 million paid subscribers within the next two years! Netflix stock price and today's market valuation is quite conservative. If Netflix were to continue its explosive growth, while keeping the margins intact (or even improving them), Netflix at $400 within the next two years is entirely plausible! Only question : How soon can Netflix offer the top 200 movies of all time in the base subscription? Enjoy the ride...
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