Finding a reliable avenue for getting entertainment in form of movies has proven to be a bit challenging. This can be attributed to the fact that not all people are willing to pay to go to cinema halls or movie theaters as a result of the cost that is associated with this pastime. So, what has been the option that most people have decided to turn to? More and more individuals have turned to the internet as their source of getting the most recent movie releases along with getting different online streaming media.
The launch of Netflix (NFLX) was an instant success, as people had gotten tired of getting the short end of the stick with its individual movie rental services. With an estimated 24 million subscribers in different parts of the globe and sales averaging to about $716 million, Netflix has proven to be one of the most successful online ventures. Along with offering online streaming media content, Netflix offers DVD and Blu-ray disc online rental services for a flat fee. This has been an added advantage to its services and has in turn drawn the large number of subscribers which it now enjoys. The road to success was, however, not so smooth, as it posted a number of loses which it eventually recovered from.
Netflix has grown into a venture with the highest operating margin in the internet retailing market at around 14.2% in its last quarter. Compared to its main rivals Amazon.com (AMZN), Priceline (PCLN) and Google (GOOG), Netflix seems to be fairing quite well. Regardless of the considerable difference in the price at which the above mentioned stock is trading at, with Google at around $624, Priceline at $735 and Amazon at $188, Netflix still proves that it is able to hold its own against such giants. Currently Netflix stock is trading at around $104, which although marks a slight drop from its previous closing, has been encouraging personally since its rivals are experiencing more significant drops in its share price. Although Google is by far the biggest of the mentioned competitors, with a market cap of about $203 billion compared to Netflix's $5.8 billion, analysts predict that it has an extremely bright feature ahead, as can be shown from its price to earnings ratio, which currently stands at about 21 and 25, respectively. However, with Google slowly expanding its reach in a variety of internet based retailing services, this margin is sure to be closed in a hurry unless the management of Netflix takes effective countermeasures.
I think that the recent revelation about the probability of Yahoo (YHOO) acquiring Netflix has been what shareholders have been expecting for a long time. This move analysts claim will not only prove to be immensely beneficial to Netflix, but also to Yahoo. This will go a long way in ensuring that Yahoo becomes a better service in terms of delivery of content, which will most likely draw in more consumers. This acquisition is likely to give Netflix the sufficient capital that will be required to facilitate the production of its unique content. As a result, the cost of distribution and sale of such content is more likely than not to be highly affordable to subscribers. I personally foresee an increase in the annual revenue of Netflix from its present $3 billion, as hints suggest that there are plans that are also underway for the development of online Television backed by Apple, and Netflix is expected to play a key role. A past deal that was struck between Netflix and Microsoft saw the latter become an official partner in the distribution of Netflix's videos over Xbox Live, and proved to be highly profitable for both entities.
Netflix's management has, however, found itself in a tight spot after a class action lawsuit was filed against it earlier this year. The lawsuit claimed that some of the top executives had knowingly misled both the public and shareholders with regards to how Netflix was faring in the stock market and with other dealings. The CEO along with other senior executives were accused of artificially inflating Netflix's share price, making it reach an all-time high of about $300 through insider trading. Shareholders have been, however, confident that Netflix will emerge triumphant, as it has been able to escape other lawsuits. The share price has remained unaffected in the face of all this trouble, which has been reassuring. Despite the fact that its primary supplier of movies and other video content has been threatening to pull out of contract negotiations, analysts still see the future of Netflix as quite bright.
With the expansion of Netflix to other parts of the globe, such a Latin America and the United Kingdom, sales are estimated to reach an all-time high. Adding this to the fact that more and more internet users are being attracted to the convenience which online rental of movies brings, the number of Netflix's subscribers is projected to exponentially increase this year. If one is looking to invest in a stock that is able to fight its way through hard times and emerge triumphant and profitable for the investor, Netflix is undoubtedly the way to go. Along with emerging markets in various parts of the African continent and South America, Netflix is bound to become a giant in online retailing of movies and streaming media, and I would encourage all to join this ship.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.