Netflix, Inc. (NFLX): A SWOT Analysis – Amazon.com, Inc. (AMZN), Coinstar, Inc. (CSTR)

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The stock price of Netflix, Inc. (NASDAQ:NFLX) has been very volatile in the last 6-7 months. Shares of the video streaming giant has come a long way from the $50 region in October 2012 to their current price of more than $180. With a good list of original content to be unveiled in 2013, the company’s stock has a lot of drama left in them. A look at Netflix’s SWOT is warranted to see the possible strategic shifts that might take place in the near future.

Strengths

First Mover Advantage:
Netflix, Inc. (NASDAQ:NFLX) has successfully managed to make the most of its first mover status, and secured the leading position in the Internet TV market. It now has more than 33.3 million global subscribers for streaming alone. It uniquely positions the company above Hulu Plus which has roughly 3 million paying users for streaming, and also above Amazon.com, Inc. (NASDAQ:AMZN) which has an estimated 5 million to 10 million subscribers.

Netflix, Inc. (NASDAQ:NFLX)Brand Value on The Rise: Netflix’s brand value is now on the rise, after receiving very strong media attention from the launch of its House of Cards series. Netflix’s management laid out a three year recovery period after its Qwikster debacle in 2011, and has done a great job already. The enhanced brand name of the company should aid substantially in getting more users across the globe, as it looks for more subscribers outside the U.S.

Unique Value Proposition: Netflix’s value proposition to end users is pretty simple; a low fixed price and unlimited viewing from its large content collection. Due to the low cost nature of Netflix, Inc. (NASDAQ:NFLX)’s business model, its customers are a lot more likely to drop their cable connection (i.e. cord cutting) and keep their “over-the-top” subscription. Netflix can be viewed from most devices with an Internet connection. Also, Netflix doesn’t have any commercial interruptions unlike its rival, Disney-backed, Hulu.

Size of Content Library:
Netflix has arguably the largest content library among all the online video streaming companies. Its content collection of an estimated 60,000+ titles is substantially greater than Amazon.com, Inc. (NASDAQ:AMZN)‘s 38,000 titles for Prime, and also bigger than Hulu’s content library. It has struck a number of exclusive content deals with big studios like Disney. And the management intends to sign more exclusive content deals, which will appeal to more users, and result in newer subscriptions.

Weaknesses

Virtuous Cycle Might End: Netflix, Inc. (NASDAQ:NFLX)’s revenue model has been described as a virtuous cycle, i.e. license large amounts of content and then attract new subscribers, and this cycle goes on. The large amount of content obligations and the expansion in international markets are being funded by debt which also enhances the credit risk of the company.

DVD Segment: The famed red envelopes of Netflix are on the decline, as customers are increasingly inclined towards consuming movies and TV Shows via the Internet and not via DVD. As a result, streaming members are increasing, and DVD consumers are on a sequential decline, a trend that is likely to continue. In 2012, Netflix, Inc. (NASDAQ:NFLX) lost ~3.0 million subscribers in the DVD business. To make matters worse, the DVD segment has a much higher contribution margin compared to the streaming business.

Price Conscious Consumers:
A sizable number of Netflix customers have been sensitive about pricing as demonstrated in Netflix’s large increase in the churn rate in 2011. Even though Netflix has a rather low price point, the entry of competitors like Coinstar, Inc. (NASDAQ:CSTR) and Verizon Communications Inc. (NYSE:VZ)’s offering of Redbox Instant, and Amazon.com, Inc. (NASDAQ:AMZN)’s Prime Instant will prevent Netflix from increasing the price of its streaming service down the road.

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