Netflix Noam Schwartz Lev Gelfand Pujish Amin. Company Description Internet Retail Industry Worlds...
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Transcript of Netflix Noam Schwartz Lev Gelfand Pujish Amin. Company Description Internet Retail Industry Worlds...
NetflixNetflix
Noam SchwartzNoam Schwartz
Lev GelfandLev Gelfand
Pujish AminPujish Amin
Company DescriptionCompany Description
• Internet Retail Industry
• World’s largest subscription service company• Streaming movies and TV episodes• Sending DVDs by mail (20 mil subscribers as of 12/31/10)
• Domestic – Streaming content and DVD delivery in US• International – unlimited streaming plan w/o DVD in Canada
• Eventually to Central and South America, UK, Ireland
• Streaming to TVs, cell-phones, computers, mobile devices
• Marketing through online advertising, TV, radio, strategic partnerships
NETFLIX, Inc., (NASDAQ: NFLX)NETFLIX, Inc., (NASDAQ: NFLX)
NETFLIX, Inc., (NASDAQ: NFLX)NETFLIX, Inc., (NASDAQ: NFLX)
Price: 66.37 52 Week Range: 62.37 – 304.79
Volume: 5.66 M Market Cap: 3.48 B
Beta: 0.46 Yield: 0
S&P 500: 1244.28
2010A 2011E 2012E
ESP $2.96 $4.47 $0.36
P/E Ratio 59.5 15.6 208
S&P EPS $78 $85 $94
S&P P/E Ratio 14.9 11.9 10.9
Relative P/E 400% 131% 1908%
SSWOT Analysis: WOT Analysis: StrengthsStrengths
• User Experience• Unlimited movies/TV episodes streamed directly to user• DVDs delivered quickly to home
• Streaming Capability• Technology Downloading of content to newer devices• Streaming service available on laptops, cell-phones,
tablets, game consoles and internet-enabled TVs
• Large Subscriber Base• 23.8 Million Subscribers, even after major recent losses
SSWWOT Analysis: OT Analysis: WeaknessesWeaknesses
• PPoor Management• JULY: Raised the price of its basic subscriber plan by 60%
• Massive Subscriber Defections
• SEPT: Launches Qwikster to rebrand, spin off DVD business• Idea subsequently reversed due to public outrage
• NOV: Raised $400 Million, convertible notes of $85.80• Earlier this year, Netflix had bought back its own shares at $200+
• Damaged Reputation• Loss of 800,000 subscribers in 3Q (3% decline)• Loss of credibility & public confidence• Increased subscriber churn and dissatisfaction in the near
term
“Netflix has clearly shot itself in the foot a couple of times in the past few months” – Whitney Tilson“Netflix has clearly shot itself in the foot a couple of times in the past few months” – Whitney Tilson
SSWWOT Analysis: OT Analysis: WeaknessesWeaknesses
• Content Acquisition• Netflix doesn’t own the content it provides• Must invest a large amount of capital to acquire it• Highest-quality content isn’t available
• Will stay in the pay TV business, where it generates more value for content owners
• Netflix pays for scraps• Dated, second-tier content that has no value in any other window
SWSWOOT Analysis: T Analysis: OpportunitiesOpportunities
• International Expansion• Canada
• Launched last year, almost 1 million Canadian subscribers
• Latin America & Caribbean• Launched in Brazil in Sept 2011
• Plans for the rest of Central & South America
• U.K. & Ireland• Scheduled launch in early 2012
SWOSWOTT Analysis: Analysis: ThreatsThreats
• Major Industry shift Content Streaming• Netflix no longer enjoys competitive advantage
• Previously thrived off first-mover advantage and efficient distribution• Now, Netflix streaming = Any other company’s streaming• Low barrier of entry, all it takes is the $$$ to acquire content
• Rising cost of content• More competitors = More Bids for Content = Higher
Prices
• Bandwidth Limitations• Netflix relies on unlimited bandwidth for its streaming
offering• 20% of all internet traffic• Broadband providers could move to a pay-for-use model
Porter’s Five Forces ModelPorter’s Five Forces Model
• Barriers to Entry • Capital Requirements, content costs money
• Economic moat around streaming business for new entrants
• Relatively low barrier for existing competitors with enough $$$
• Brand Identity: No longer the best
• Loyalty is weak, many unsubscribed
Threat of New Entrants
Porter’s Five Forces ModelPorter’s Five Forces Model
• The Bargaining Power of Suppliers (HIGH)• Content is a Key Input in Netflix Business
• Suppliers = Content Owners (Time Warner, CBS)
• Limited # of Suppliers have High Quality Content
• There is no substitute for High Quality Content
• At the mercy of their licensing deals
Bargaining Power of Suppliers
Porter’s Five Forces ModelPorter’s Five Forces Model
• Bargaining Power of Buyers (HIGH)• Netflix Revenue is majority customer sales based
• Customers not as loyal as before
• Better and cheaper ways to watch movies and TV
Bargaining Power of Buyers
Porter’s Five Forces ModelPorter’s Five Forces Model
• Many Competitors from all sides of business
• Apple TV, Amazon on Demand, Hulu, Blockbuster on Demand, Cablevision, Verizon, DirecTV
• Comcast and Dish Network are overlooked substitutes• Work closer with content owners to offer better Video On
Demand experience for customers
Threat of Substitute Products
Porter’s Five Forces ModelPorter’s Five Forces Model
• Competition is split into 2 buckets1. Existing Pay-TV distributors
2. Cash Rich Tech Companies
For Example – Apple’s Cash Balance is 20x Netflix’s Projected 2011 Sales
- Good First Mover Advantage, but TV distributors and Tech companies have a better position to license quality content over a longer horizon
Rivalry Among Competing Firms
in Industry
Recommendation: Recommendation: SELLSELL
• Netflix is a prime example of a BROKEN company• Business model is flawed, there was an overall shift
in the Internet retail industry, they lost their competitive advantage
• Continued customer defections
• International expansion is expensive, risky, uncertain
• Rising costs of content will drain profitability
• No dividends or yield