Netflix, Inc. (NASDAQ:NFLX) was let off the hook as the CEO Reed Hastings is now allowed to post whatever he literally wants through social media. In fact, social media is being considered an acceptable alternative that may no longer require the lengthy approval process of the SEC. Zacks Investment Research states:
Last year, Netflix stirred a controversy when its CEO used Facebook to reveal monthly subscriber details. Netflix was charged by SEC for violating disclosure norms. However, the increasing relevance and participation of the social media in corporate communications forced SEC to revise its disclosure rules. SEC now allows companies to make corporate announcements over social media platforms, including Facebook and Twitter, by providing relevant web addresses through notifications on their company websites and press releases.
The movie streaming service has had some serious ups and downs. A series of events led to an exceptionally strong reversal in the price of the stock. The content deal with The Walt Disney Company (NYSE:DIS) put Netflix back on the radar as Netflix, Inc. (NASDAQ:NFLX) was able to secure significant content rights. Following that, Netflix was also able to secure content rights with Warner Brothers (Time Warner). The content rights that Netflix were able to secure did not go into immediate effect, meaning that the recent announcement from Reed Hastings, “subscribers watched 4 billion hours of streaming over the last three months.” The recent news is good because the user viewership statistic clearly illustrates that viewership continues to increase even with the current content collection. Netflix will eventually become an exclusive distributor of Walt Disney content in 2016, meaning that Netflix will have to wait 3-years before experiencing any benefits from the content deal with Walt Disney. In the meantime, Netflix is still growing its subscriber base at a fairly rapid rate.
Other bloggers like to point out, that Netflix has some serious competition. Amazon.com, Inc. (NASDAQ:AMZN) recently launched its own version of Netflix, by providing movies on demand through its Amazon prime streaming service. Not only is Amazon considered a serious threat, Xfinity from Comcast Corporation (NASDAQ:CMCSA) is also attracting a lot of attention. While some of the arguments presented in favor of Comcast and Amazon make sense, such as the larger balance sheets these more well-capitalized competitors have, I still believe these companies lack a lot of what is necessary in order for them to succeed in on-demand-movie-streaming. Another laughable competitor is Google Inc (NASDAQ:GOOG)’s YouTube. I doubt Google would be a serious competitor due to the sheer price difference of renting a single movie on YouTube ($2.99 for a single day, for a single movie), versus the $8.99 a month Netflix, Inc. (NASDAQ:NFLX) charges (for unlimited viewing in a single month, for its whole content library).
Think of it this way, would Google sacrifice its 20% net profit margin in order to compete in a low margin, high-growth business like movie streaming? Google is busy rolling out Google Fiber, restructuring Motorola Mobility, and launching cannon balls into emerging markets. Google can earn higher returns on capital through its preexisting business activities rather than trying to over-extend its product portfolio. Google will never be a serious contender in movie streaming, so let’s ignore Google.
Now onto Amazon, Amazon already has low profit margins, according to its 4th quarter earnings release, Amazon’s current profit margin is -.06%. I doubt Amazon would push its way into the movie streaming space at the expense of its shareholders. Amazon’s business empire is being stretched on profitability, and many industry analysts are begging Amazon to cut back on wasteful spending. While I respect and admire Jeff Bezos, I doubt Bezos would be eager to waste shareholder money on its streaming service for much longer. I am more than certain, Amazon will have to make some cuts to its product portfolio, and one of those things will be the Amazon Prime movie streaming.
Comcast generates a profit margin of 9.91%. The company has been able to improve its profitability over the past two years. I doubt the CEO of Comcast would risk being fired by trying to compete directly with Netflix. The Xfinity product package is a higher-end package that’s $30 per month. That’s 4 times the price of Netflix’s streaming service which means that Comcast isn’t looking to operate its Xfinity business segment at larger economies of scale. Comcast’s goal is to turn Xfinity into a predictable source of income. Management is aiming its product offering at a higher-end market, limiting its long-term growth, and stunting the amount of market share it will be able to take away from Netflix. Therefore Netflix will remain the dominant player in the movie streaming space.
Netflix, Inc. (NASDAQ:NFLX) has a well-established brand identity, along with exclusive content rights with Walt Disney. Now I am not sure about you, but Netflix will have the Star Wars trilogy, the upcoming Pixar animations, along with your favorite Walt Disney TV shows like Hannah Montana, and Marvel’s collection of comic book movies! Walt Disney’s content platform, along with Netflix’s strong brand identity keeps Netflix well ahead of the competition. Over-time I anticipate Netflix to operate at even larger economies of scale due to its expansion efforts in foreign markets.
Netflix should be able to sustain tremendous growth as the company has been able to grow its subscriber base at an extremely rapid rate.