Total Pageviews

Saturday, March 12, 2011

Unforeseen rivalry for Netflix (NASDAQ:NFLX)

Since its inception in 1997, Netflix has risen phenomenally. I still remember the stock price of NFLX was around $50 in the summer of 2009- in the midst of the great recession when I joined Netflix community as one of their over 10 million subscribers. I like this concept of movie-watching and so do the Americans. Since then it has increased fourfold and is seen as one of the bullish stock on the Wall Street.

Netflix has seen many competitors in the American market like Blockbuster Video, Movie Gallery and Hollywood Video. It is solely considered responsible for bankruptcy and shrinkage of those ubiquitous DVD rental chains. And now a days, it is successfully dominating this sector of industry despite of some substantial competition provided by Coinstar's Redbox.

The most buzzed topic on the Wall Street in recent times is bubbling and bullying "Social Networking Industry". Star bankers from everywhere are following these private companies like Facebook, Twitter to help them go public and cash in billions for their banks like it happened during Google's IPO. Netflix's business model is nothing to do with social networking industry. As we studied in ECON 101, competition lures new entrants and squeezes the mature companies. And Netflix is not an exception. But the competition it is going to face, seems unforeseen and out of theory. It has deals with a number of studios like MGM, Paramount, Lionsgate, Warner Brothers etc. to stream or rent their movies after they release DVDs. Studios have earned handsome money from Netflix's expansion. But recent deal between Warner Brothers and Facebook is eye catching to me.  Why would someone take such a cannibalizing step?
  • Buzzing atmosphere around social networking industry.
  • Facebook has 500 millions subscribers; the way bigger than Netflix has.
  • Impetus for linking yourself with social networking giants like Facebook is skyrocketing these days.
To me, it is not clear yet. But Netflix suffered immediately after this news and justified analysts' skeptical recommendations for NFLX. I have not made any valuation for NFLX, but based on my market insight I would love to HOLD for NFLX.


  1. What about
    1.) Amazon's instant video streaming service
    2.) Facebook's latest venture to show videos.

    So many big players are coming into this.

  2. Indeed I am aware of Amazon, but I was more focused on "cannibalization" and "link to social networking industry".