Is Netflix, Inc. (NFLX) Still a Good Investment?

Future competition

Achieving a competitive ROIC will only become more difficult as better funded competitors introduce subscription streaming services of their own. If we include online rental and purchased content, then Netflix already has significant competition for the consumer’s online entertainment dollar from the companies listed in the table.

Amazon hosts the Netflix, Inc. (NASDAQ:NFLX) domestic streaming service through Amazon Web Hosting, so they clearly have the technical capability to compete with Netflix.  Amazon has also started offering as part of its Amazon Prime service ($80/year) unlimited streaming of selected movie and TV titles.  While the web interface is primitive, the Amazon Instant Video app for iOS works well, and Instant Video is also available on other devices such as Sony Blu-ray players.  On the Sony, Instant Video allows the watching of Amazon Prime titles as well as renting or purchasing many other titles available for download.

This hybrid approach is probably the future for online content providers such as Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL).  Google has already started experimenting with the subscription model through YouTube subscription channels and has a lucrative content store in Google Play that could also host a subscription service.  In Q1, Google made about $1 billion in revenue from Google Play (including all goods and services).

Google also announced a subscription music service at Google IO called Google All Access.  Clearly Google is interested in the subscription content provider model.  With an audience of roughly 750 million Android device users, many using the Netflix Android app, a Google subscription video service would help Google improve monetization of its Android devices, a high priority.

Apple also appears well positioned to offer a subscription streaming service if it so chooses.  The iTunes segment generated $4.1 billion in revenue in 2013 Q1, and it reaches beyond Mac OS and iOS with the PC version of iTunes.  With roughly 500 million iOS users, Apple has a ready market for a subscription video service.  Such a service would undoubtedly be integrated into iTunes for a “hybrid” service of unlimited streaming, rentals, and purchases.

So far, Apple has been content with the rental/purchase model, but this may change with the arrival of an Apple Television.  An iTV just cries out for a subscription service in order to ensure that the iTV is (almost) always showing Apple-provided content.

Opportune profit-taking

Given the enormous run-up of the stock and the vulnerability of Netflix to competition, I think it’s time to cash out of Netflix.  You might miss out on a little additional upside, but you’ll be glad when the Netflix, Inc. (NASDAQ:NFLX) bubble bursts.

The article Is Netflix Still a Good Investment? originally appeared on Fool.com and is written by Mark Hibben.

Mark Hibben has a position in Apple. The Motley Fool recommends Amazon.com, Apple, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Google, and Netflix. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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