Netflix can remain leader as streaming business grows
As the movie rental company rebuilds its image, keeping prices stable will be critical.
We estimate that about 60% of Netflix's value is going to come from its domestic streaming business and about 25% from international streaming. The US DVD business accounts for the remaining 15% of our total price estimate for Netflix.
Our estimates assume that although competition from companies such as Amazon (AMZN) and Blockbuster under Dish Network (DISH) will increase and that new competitors might emerge, Netflix will be able to leverage its lead, repair its brand and continue to gain new subscribers.
Although the international opportunity for Netflix is huge, the subscriber base may not be able to match that of the US due to local competitive resistance and a lack of broadband penetration and speeds in markets such as Latin America. We expect that in the long term, the US subscriber base is likely to stay higher than the international base.
Finally, we estimate that the US DVD subscription business will be the lowest value contributor because of the expected continued decline in the DVD subscription base. Although 2011 declines were steep and resulted from Netflix's price hikes, over the longer term, changing consumer behavior will mean fewer subscribers for this service.
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