How Valuable Are Netflix's Subscribers Compared To Comcast?

| About: Netflix, Inc. (NFLX)
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A comparison of Netflix (NASDAQ:NFLX) and Comcast (NASDAQ:CMCSA) reveals that the latter’s subscribers are much more valuable. The market is valuing Comcast’s pay-TV business at $2,265 per customer as compared to $395 per customer for Netflix’s U.S. streaming service. The disparity makes sense because Comcast’s average revenue per subscriber is much higher than that of Netflix, and the pay-TV market in the U.S. is well penetrated and stable. On the other hand, while Netflix has shown strong growth, it has also demonstrated its vulnerability and lack of stickiness of its customer base. Nevertheless, when we also compare free cash flow per customer for both the companies, we find that Netflix is still being priced a little steeply.

Our price estimate for Netflix stands at $232, implying a discount of about 30% to the market price.

Comcast Is Making 10x Money Per Video Subscriber As Compared To Netflix

For 2013, we estimate that Comcast will earn close to $21 billion in revenues from its video (pay-TV) service, as compared to Netflix’s $2.75 billion from the U.S. streaming business. On per subscriber basis, Comcast will earn close to $952 as compared to Netflix’s $89. Although the latter has more subscribers, the average revenue per subscriber is very low, as most of the content on Netflix is old and commands less of a premium. If we look at the cash flow metrics, we see a similar disparity, with Comcast earning close to $203 per subscriber as compared to Netflix’s $18. Comcast’s content costs are high as its pay-TV service offers fresher and much more content than Netflix does. Therefore, the company needs to keep its subscription price higher to protect its margins.

Trefis estimate for 2013 ($)

Yet The Market Value Per Subscriber For Comcast Is Roughly 5.5X That Of Netflix

Despite the fact that Comcast makes 10 times more money per subscriber than Netflix does, the stock market is pricing its video service at a valuation, which is only 5.5 times that of Netflix on a per subscriber basis. We estimate that Comcast’s pay-TV service constitutes roughly 40% to its price estimate. Applying this percentage to its market value, we arrive at a valuation of $2,265 per subscriber. The same figure for Netflix’s U.S. streaming business stands at roughly $395 per subscriber. According to the market, Comcast’s subscribers are worth 2.4 times the revenue per subscriber, compared to a multiple of 4.5 for Netflix. That seems a bit steep, especially considering that Comcast’s business is more stable and there has been significant volatility in Netflix’s growth in recent years. But then again, Netflix has high multiples across most valuation metrics. It appears that the market is not pricing in the risks inherent in the company’s business. One could argue that the growth trajectory of these companies is different, but Netflix’s growth could significantly slowdown in the U.S. in the next couple of years as competition catches up and the company approaches potential saturation level.

Our price estimate for Netflix stands at $232, implying a discount of about 30% to the market price.





Streaming Content Costs as % of Revenue





Total Content Costs as % of Revenue





Streaming Content Obligations as % of Revenue




Total Streaming Content Obligations ($ Million)




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