Won’t Be Easy for Netflix (NFLX)

At this point, almost everyone knows about Netflix, Inc. (NASDAQ:NFLX). The online streaming company offering movies and TV shows on demand was a pioneer in this field, which drove corporate earnings for the firm. Such innovation and profitability in corporate earnings was bound to attract attention from competitors, many of them much larger than Netflix.

Anytime you get larger competitors, the earnings outlook starts to get cloudy. Recent news that cable giant Comcast Corporation (NASDAQ:CMCSA) is entering the online streaming market by offering its existing customers a much lower rate than the Netflix product. One key indicator of a poor earnings outlook is when a larger competitor starts to fight on price. This will hurt corporate earnings for Netflix, possibly to the point of causing the firm severe problems.

Comcast is offering its streaming service for $4.99 a month or free for customers who have a higher priced cable package. This compares with Netflix offering its service at $7.99 a month. I think there might be a significant hit to the corporate earnings of Netflix if many of its clients decide that a bundled cable package of current TV and an online database of streaming movies that’s either free or only $4.99 might entice many customers.

But Comcast is not the only one Netflix has to fight for its corporate earnings. Amazon is continuing to sign deals with Hollywood companies for its streaming service, offering movies and TV shows as well. Amazon is a giant that relies on slim corporate earnings, which can only hurt the future earnings outlook for Netflix.

Fighting this battle for corporate earnings amongst huge corporations won’t be easy for Netflix. Netflix faces lower market prices, greater accessibility for consumers to more competition, and higher costs, as Netflix has signed deals for content already and can’t increase prices to the end consumer. This is a bad business model and it’s tough to see how the company’s corporate earnings are going to expand.

One key indicator that might help Netflix is that it is attempting to produce and sign content exclusively for its own network. At this point, it is difficult to calculate an earnings outlook based on something that’s theoretical. I would need to see how much interest these new initiatives can garner and if this can stop the outflow of customers leaving for their competitors.

Management needs to differentiate Netflix from the crowd, or try to sell the firm to a larger company like Apple Inc. (NASDAQ:AAPL) or Google Inc. (NASDAQ:GOOG). While Netflix still has a fighting chance to survive, it will be a very tough road over the next several years, as the earnings outlook remains very murky. Corporate earnings will most likely be hurt by lower-priced competitors enticing customers to switch away from Netflix.

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About Sasha Cekerevac 31 Articles

Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an insider’s look at what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert.

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1 Comment on Won’t Be Easy for Netflix (NFLX)

  1. I don’t really see how comcast is really a big threat to netflix. Comcast is offering online streaming for 4.99 to its current cable clients with smaller less expensive starter packages and free for those who have the premium packages. 4.99 is not being offered to non-customers. So if you want to take advantage of the 4.99 you must then purchase cable service in the first place. I honestly don’t see Netflix customers canceling their 7.99 account to go open a minimum basic package of $30 or above plus $4.99 for streaming.
    That’s just my opinion, I could be wrong, I’d like to read others input.

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