Netflix (NASDAQ:NFLX) makes money by charging monthly subscription fees to its movie rental customers. The company delivers rental DVDs through the mail and offers the ability to view some movies online.
Netflix competes with Blockbuster (NYSE:BBI), Redbox and pay-TV providers like Comcast (NASDAQ:CMCSA) that offer on-demand video streaming service. In order to rapidly grow its subscriber base, the company has been aggressive on pricing.
Netflix subscribers to reach 28 million by 2016
Netflix’s subscriber base has roughly tripled since 2005. The company had about 12 million subscribers by end of 2009 compared to only about 4 million subscribers in 2005.
We forecast that Netflix will have about 14 million subscribers in 2010 and that this will double to about 28 million by the end of the Trefis forecast period.
We expect subscriber growth to continue, but at a slower rate, primarily due for the following reasons:
1) Netflix is witnessing great demand for its $8.99 a month plan, which includes renting unlimited DVDs (one at a time) and access to unlimited streaming service. The value proposition is quite strong to many customers, encouraging them to subscribe.
2) Netflix has over 100,000 movies in its DVD catalog and about 17,000 online streaming titles. This depth of content gives Netflix an edge over its competitors.
3) Netflix is continuing to invest in its online movie streaming service which will position the company to attract more customers that prefer online viewership.
You can modify our forecast above to see how Netflix’s stock could be impacted if its subscriber base were to continue to increase at historical rates and tripled to within the next four years.