At the time of this post, the market was valuing Netflix at $37 per share, one year ago the share price was $26.89. The raw return for the stock over the past year was( ($37-26.89)/26.89) = 37.6%
One question to ask was how did Netflix beat the expectations set at the end of last year...?
One interesting article that discusses some of these expectations (at the time) is the article "Netflix looks like a bargain again" written about a year ago, along with expectations about 2008 written in the companion piece "Netflix 2008 Outlook" where the author discusses expected growth rates in subscriptions.
What do you believe the Outlook for 2009 will look like?
I think that Netflix will do well in 2009. The author gives a few scenarios in the articles and most of them show Netflix gaining value. Also, there are some brick and mortar video rental stores that are closing their doors and this will provide more customers to the market. Netflix will no doubt grab some of them.
ReplyDeleteNetflix should be careful about it earnings growth though. Following the data provided by the author, revenue per customer is down from 2005. While gaining customers is good, it needs to be careful that it is generating enough money to continue as a going concern in the future.
We discussed in class some obstacles to Netflix. I believe these will hamper Netflix's growth in the future, but I think that this will be a decent year for them. That being said, I do not think Netflix will enjoy the growth it has seen in the past. The economic downturn has affected most industries and most people are cutting back on the 'luxuries'. The service that Netflix provides might be something that people will decide to part with in order to save some money. Netflix can not take all its customers for granted and needs to continue to work on new and innovative ways to get more market share.
It was quite a shock seeing Netflix's 45% increase in 4th quarter earning while the general economy took a dive. This cheerful news has created some noises. I "ALMOST" sign up for the subscription just because the deal sounds great, however, I was able to resist the temptation, at least for right now -too much homework from Asher, maybe?
ReplyDeleteIt is hard to predict the outlook for 2009 without actually seeing their 10K for 2008. I went online for a search, but was not successful...Has anyone gotten a copy of the most recent 10K?? Maybe it will be out at the end of this month?
According to the 10K for 2007, it seems like their subscription numbers were SLOWLY declining since 2006 - may be the days for DVD mail in business are indeed numbered. However, the business seems to do well - possibly because they started instant-watch feature where the customers can download the movies instantly. Even in the instant download segment, Netflix still faces some big competitiors, such as Apple and Amazon, who also provide movie streaming services. They also used quite a bit of cash on investing activities in 2007, such as expanding their content library. Their current ratio from 2007 looks good.I didn't see long term debt...We should probably wait to see the 2008 annual report to find out exactly how they performed last year. There may be secrete ingredients for their better than expected performace.
According to Market Watch -
http://www.marketwatch.com/news/story/netflix-hit-downgrade-video-streaming-concerns/story.aspx?guid=%7BF5BAB0FB-9B37-43AF-8D81-AE5341971A39%7D
Charlis Wolf, financial analyst from Needham seems to think the netflix's stock is overpriced. He believes that the fair value of the stock is only worth $25 because investors think too optimistically about '"the questionable prospects" of digital distribution' in spite of the company just annouced streaming movies with Microsoft's Xbox 360 users.
Seriously, until their technology, blu-ray for instance, catch up with their ideas, I am a little bit skeptical.
-Carol Hsieh
I project 3% quarterly subscriber growth with significant (25%) revenue growth. I believe the price erosion of the last several years has leveled off and Netflix can expect to stay in the range of $40-41 per customer. The "trading down" we are seeing throughout consumer industries should also hit entertainment this year.
ReplyDeleteNetflix fits a nice niche as their service can be used to stretch consumers' entertainment dollars. As a result I also expect the company to have to spend more on its DVD library as many customers will maximize subscriptions by turning discs around quicker. More viewings means quicker replacement and more spending to maintain its libraries. Compounding this will be its growth in customers specifically seeking this added value (i.e. fixed rate regardless of the number of movies viewed) that Netflix's subscription service provides.
Bottom line- earnings will be substantially the same as DVD library maintenance costs negate the gains in revenue. Expect Netflix to fare better than higher priced premium channels as well as bricks and mortar video rental(Blockbuster).