Netflix, Inc. (NFLX) has gained significant attention recently due to a number of reasons. The leading Internet video streaming company plans to retain its 23 million subscribers as it provides exclusive content. The success of the original program, "House of Cards," has helped the company regain some confidence. The show has been produced by the company and it can be streamed exclusively on Netflix.
Prospective Business Growth
Although the company faces very strong competition, Netflix has remained resilient due to its successful strategies. A number of individuals were skeptical regarding the company's investment of $100 million in the production of "House of Cards" however, the success of the show has proven that the decision was very effective. The production is being compared to some of the leading network shows, and it has made the subscribers of Netflix more loyal to the service.
Apart from "House of Cards," Netflix is also producing newer episodes of "Arrested Development," which will also be exclusively available to the subscribers of the service. Netflix has also planned to start streaming episodes of "Hemlock Grove," which is a horror-thriller in April. Such diversity of programs will provide the subscribers with quality programming from different genres. This fact will strengthen the loyalty of subscribers even more.
This fact suggests that the company's financial performance will improve in the prospective periods. For the fourth quarter of 2012, revenue was $945.2 million, which was 7.9% higher than the revenue in the same quarter last year. The profit margin for the same quarter was 0.84%. Considering the rising strength in the business of Netflix, it can be expected that both revenue and profit will rise in the upcoming periods.
Another strategy by Netflix to strengthen its business includes entering into deals with major entertainment companies for exclusive rights to their content. Implementing on this strategy, Netflix entered into a deal with The Walt Disney Company (DIS) for exclusive rights of the company's releases. Since Disney produces some of the well-received entertainment, the rights to its content would help Netflix to enhance its content library significantly. Disney has remained a successful family entertainment company with the profit margin of 12.68% declared for its fourth quarter of 2012.
The competitor that poses threat to Netflix is Amazon.com, Inc. (AMZN). Amazon has also entered into deals with some of the biggest networks such as NBC Universal and CBS for exclusive rights to the content of these networks. Following the footsteps of Netflix, Amazon has also decided to produce its own programs that will be streamed exclusively on Amazon's video streaming service. Amazon recently reported a profit margin of 0.65%, which suggests that in terms of profitability, it is in the same phase as Netflix.
Market Performance of Netflix
The market performance of Netflix has been excessively volatile over the past months. There have been some unforeseeable highs and lows that make the company's stock vulnerable to sudden shifts. Currently, the shares of the company are being traded within the range of $184.55 and $189.99; however, the 52-week range of share price of the company has been between $52.81 and $197.62. The enormity of the difference between the two extremes suggests that the highs and lows of the share price have been extreme. The following chart represents the trend of share price of the company over the past year.
The chart indicates that the share price has been highly volatile throughout the year; however an unusual spike in the share price can be observed toward the end of January 2013. The rise in share price was due to the positive financial performance reported by the company for the fourth quarter of 2012.
After the analysis of relevant information, in my opinion, investors should hold their investments in Netflix. I believe that the market performance of the company is still uncertain. Although the financial performance seems to be moving in the right direction, whether the spiked share price is here to stay cannot be said with complete certainty. Therefore, it may not be a favorable decision to buy the company's shares at this point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.