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Noam Schwartz Lev Gelfand Pujish Amin

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Presentation on theme: "Noam Schwartz Lev Gelfand Pujish Amin"— Presentation transcript:

1 Noam Schwartz Lev Gelfand Pujish Amin

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


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

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