1. Noam Schwartz Lev Gelfand Pujish Amin
Netflix

2. Company Description Internet Retail Industry
World’s largest subscription service company
Streaming movies and TV episodes
Sending DVDs by mail (20 mil subscribers as of 12/31/10)
Domestic – Streaming content and DVD delivery in US
International – unlimited streaming plan w/o DVD in Canada
Eventually to Central and South America, UK, Ireland
Streaming to TVs, cell-phones, computers, mobile devices
Marketing through online advertising, TV, radio, strategic partnerships

3. NETFLIX, Inc., (NASDAQ: NFLX)

4. NETFLIX, Inc., (NASDAQ: NFLX)
Price:
66.37
52 Week Range:
62.37 –
Volume:
5.66 M
Market Cap:
3.48 B
Beta:
0.46
Yield:
S&P 500:
2010A
2011E
2012E
ESP
$2.96
$4.47
$0.36
P/E Ratio
59.5
15.6
208
S&P EPS
$78
$85
$94
S&P P/E Ratio
14.9
11.9
10.9
Relative P/E
400%
131%
1908%

5. SWOT Analysis: Strengths
User Experience
Unlimited movies/TV episodes streamed directly to user
DVDs delivered quickly to home
Streaming Capability
Technology  Downloading of content to newer devices
Streaming service available on laptops, cell-phones, tablets, game consoles and internet-enabled TVs
Large Subscriber Base
23.8 Million Subscribers, even after major recent losses

6. SWOT Analysis: Weaknesses
“Netflix has clearly shot itself in the foot a couple of times in the past few months” – Whitney Tilson
Poor Management
JULY: Raised the price of its basic subscriber plan by 60%
Massive Subscriber Defections
SEPT: Launches Qwikster to rebrand, spin off DVD business
Idea subsequently reversed due to public outrage
NOV: Raised $400 Million, convertible notes of $85.80
Earlier this year, Netflix had bought back its own shares at $200+
Damaged Reputation
Loss of 800,000 subscribers in 3Q (3% decline)
Loss of credibility & public confidence
Increased subscriber churn and dissatisfaction in the near term

7. SWOT Analysis: Weaknesses
Content Acquisition
Netflix doesn’t own the content it provides
Must invest a large amount of capital to acquire it
Highest-quality content isn’t available
Will stay in the pay TV business, where it generates more value for content owners
Netflix pays for scraps
Dated, second-tier content that has no value in any other window

8. SWOT Analysis: Opportunities
International Expansion
Canada
Launched last year, almost 1 million Canadian subscribers
Latin America & Caribbean
Launched in Brazil in Sept 2011
Plans for the rest of Central & South America
U.K. & Ireland
Scheduled launch in early 2012

9. SWOT Analysis: Threats
Major Industry shift  Content Streaming
Netflix no longer enjoys competitive advantage
Previously thrived off first-mover advantage and efficient distribution
Now, Netflix streaming = Any other company’s streaming
Low barrier of entry, all it takes is the $$$ to acquire content
Rising cost of content
More competitors = More Bids for Content = Higher Prices
Bandwidth Limitations
Netflix relies on unlimited bandwidth for its streaming offering
20% of all internet traffic
Broadband providers could move to a pay-for-use model

10. Porter’s Five Forces Model
Threat of New Entrants
Threat of New Entrants
Barriers to Entry
Capital Requirements, content costs money
Economic moat around streaming business for new entrants
Relatively low barrier for existing competitors with enough $$$
Brand Identity: No longer the best
Loyalty is weak, many unsubscribed

11. Porter’s Five Forces Model
The Bargaining Power of Suppliers (HIGH)
Content is a Key Input in Netflix Business
Suppliers = Content Owners (Time Warner, CBS)
Limited # of Suppliers have High Quality Content
There is no substitute for High Quality Content
At the mercy of their licensing deals
Bargaining
Power of Suppliers

12. Porter’s Five Forces Model
Bargaining Power of Buyers (HIGH)
Netflix Revenue is majority customer sales based
Customers not as loyal as before
Better and cheaper ways to watch movies and TV
Bargaining
Power of Buyers

13. Porter’s Five Forces Model
Many Competitors from all sides of business
Apple TV, Amazon on Demand, Hulu, Blockbuster on Demand, Cablevision, Verizon, DirecTV
Comcast and Dish Network are overlooked substitutes
Work closer with content owners to offer better Video On Demand experience for customers
Threat of Substitute Products

14. Porter’s Five Forces Model
Rivalry Among Competing Firms in Industry
Competition is split into 2 buckets
Existing Pay-TV distributors
Cash Rich Tech Companies
For Example – Apple’s Cash Balance is 20x Netflix’s Projected 2011 Sales
- Good First Mover Advantage, but TV distributors and Tech companies have a better position to license quality content over a longer horizon

15. Recommendation: SELL Netflix is a prime example of a BROKEN company
Business model is flawed, there was an overall shift in the Internet retail industry, they lost their competitive advantage
Continued customer defections
International expansion is expensive, risky, uncertain
Rising costs of content will drain profitability
No dividends or yield