Netflix, Inc. (NFLX)

game changer

The future on entertainment in your living room if you don't use iTunes.

momentum

Nothing new to add, I just decided that today looked like a good entry point.

Netflix has already turned Blockbuster from the darling of wall street to the guy on the street begging for a nickel. But that isn't why you should buy Netflix (its valuation has already baked in the fact that it is the King of mail order DVDs). Recognizing the next big transition to online movies rentals early, Netflix is the clear leader in online movie rentals and is poised to stay that way for a long time. Barring market entry from Google, I don't see anyone who could challenge netflix credibly (certainly not Apple or Microsoft). Moreover, its recommendations system is second to none, and a little known fact of this business is that good recommendations are the centerpiece of success (there are only so many "new releases" that one person will rent in a month, and those have lower profit margings/higher costs to Netflix). Those red boxes outside the grocery store will never compete with the vast selection and recommendations engine of netflix. This one only goes up for the foreseeable future.

THEY ARE ABSOLUTELY THE BEST AT WHAT THEY DO. NOBODY ELSE COMES CLOSE.

Hold the phone people. Trailing indicators seem to say that this stock is really overvalued. I love netflix but there are much better buys out there.

Love their potential for short term growth with the expansion of Blu Ray - many people find Blu Ray discs to be overpriced still, and Netflix is a good way to get discs to go with the players which are dramatically dropping in price (many players under $200).

Over the long term, they are very well positioned with their streaming service to take advantage of new contracts as movie studios open up more to the idea of on demand programming. Netflix's current model is temporary until the whole industry changes - and when it does, Netflix will be a frontrunner.

Are they kidding with the use of debt to repurchase shares?

Just added PS3 to its subscriber base.
Has the growth of Apple and Google, So it's P/E will be around 30 to 35
current P/E 28.47
forward p/e 24.22
New price target of $70.

good buy

Although it is trading at/near its 52 week high, I am still a buyer here. Netflix deal with Microsoft to deliver content to the Xbox360 was a very good move, and now they went out and signed a deal with Sony to deliver content to the Playstation3. Also, there is almost no overhead due to the fact they have no actual stores. Great business, great buy.

Stock: NFLX

Recommendation: Buy

HIGHLIGHTS

Netflix, Inc. provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD). Its members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs. As of September 30, 2009, Netflix served approximately 11 million subscribers with approximately 100,000 DVD and Blu-ray titles, and a library of 12,000 streaming content choices. It also partners with consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members' TVs from Netflix. The company was founded in 1997 and is headquartered in Los Gatos, California.

Netflix has average sales and EPS growth rates of over 35% and 60% respectively for the past 6 years. With a subscriber base growing rapidly, the ever increasing popularity of its online streaming service and the recently announced plan for international expansion, Netflix is set to continue growing sales and earnings at double digit rates for the next five years.

Netflix's ratios compare favorably both to the movie store and the online retailer industry (both industries are relevant comparisons as Netflix is in the movie rental business, but has a cost structure and operational model that are somewhat similar to those of online retailers). Not only do the ratios compare well with the competition, they have also been growing over the past 5 years. For example, as of this writing, Netflix had an ROE of approximately 46%, up from last year's 27%.

With a debt/equity ratio of 0.24 and a current ratio of 1.15 Netflix is in relatively solid financial condition. It operates what is essentially a cash business and it has been generating consistent positive free-cash-flow year after year, which it is using to fuel its growth and pay back shareholders with a considerable share repurchasing program.

Netflix has grown at a break-neck pace over the last decade, and although that growth has slowed as the company got bigger, there is still plenty of room for Netflix to expand its revenue. Over the past few years Netflix seems to have succeeded in building some brand recognition and I expect the Netflix brand to eventually overshadow Blockbuster's.

With 11 Million subscribers, Netflix is currently used in approximately 10% of U.S. households. The San Francisco Bay Area, a trendsetter in the eyes of many, leads the U.S. with approximately 22% of households using Netflix. Blockbuster, in comparison, has reported being used by 43 Million U.S. households. Over recent years, Netflix has been luring customers away from the video store giant at an alarming rate (alarming for Blockbuster that is). For these reasons I believe that Netflix could reach 25-30 Million subscribers in FY2014, possibly more depending on the success of its newly announced plan to enter international markets.

Although there’s plenty of competition for streaming content in the form of cable companies, services such as Hulu, and sports content like nhl.com, I believe that Netflix's streaming services are going to be a key growth driver in the mid to long term. As David Vellente wrote on internetevolution.com "Netflix is building a strong brand, shunning advertising-supported content and efficiently building out a distribution engine that will be an online force for many years to come."

INVESTMENT RATIONALE

Netflix has been growing its subscriber base at a very healthy rate (32% YoY). Furthermore the growth rate has been accelerating in the past few years. I believe that the subscription growth will continue over the next 5-10 years, fueled by an increasing domestic market share (as customers continue to walk away from bricks and mortar video store to join the online revolution), international expansion and a promising, yet largely untapped, online streaming service. I’m estimating an annual sales growth rate of 18.5%

I started with my sales prediction for FY 2014 of $3.7 Billions, took out 90% for pre-tax expenses ($3.3 Billions) and $148 Millions in taxes leaving me with a Net Profit of roughly $222 Million. I divided that amount by my predicted amount of shares outstanding (45 Million) and arrived at an EPS of 4.94$ for FY 2014 representing a 22.2 % increase over current EPS.

P/E ratios have been decreasing over the past years for several reasons, but mainly because of the recession and because of a slowing, although still incredibly strong, growth rate. For this reason I believe a High P/E of 30 is reasonable and a Low P/E of 15.

Using a P/E of 30 and an FY 2014 EPS estimate of $4.94 I arrive at the 5 year target price of $148 representing a possible compounded annual return of 21.4%.

With an intrinsic value of $70 according to my DCF model, I am recommending buying NFLX under $57.

487

Adding PS3 to it's list of streamable devices.

This is where everyone will get their movies in the future. Maybe they'll even get bought out eventually.

Netflix has cornered the home delivery DVD market. They have essentially replaced the Blockbuster's of the world. They are getting into the internet to TV market as well and be a dominant player. own this stock and it will treat you well

The subscriber base only gets bigger and bigger

Going, Going-this is the going way to get your entertainent.

Things are looking up and up for this one. On-line streaming is making it way and who needs to stand in line with red box anyway. Management is making some smart decisions, especially involving customers. Future looks bright.