The average number of DVDs mailed each month to Netflix (
) subscribers has seen a consistent decline over the years,
reflecting the increasing popularity of lower value subscription
packages that offer subscribers a limited number of DVDs but
unlimited online streaming. The company recently introduced a
streaming only plan in the US to capture this demand, for $8/month,
after releasing a similar product in Canada. We expect the trending
decline in number of DVDs mailed per subscriber to continue as
online streaming gains popularity and expands internationally.
Netflix competes with cable and satellite operators
like Time Warner Cable (
) Comcast (
), Dish Network (
) and DirecTV (
) for streaming and pay-TV services, as well as video rental
services like Redbox.
We currently maintain a
Trefis price estimate of $106 for Netflix's
, about 42% below the current market price.
Netflix is expanding internationally starting with Canada which
presents huge market potential. Since international service is
likely to be streaming only, the proportion of subscribers using
streaming only service will rise significantly thereby driving down
DVDs mailed to each subscriber.
Availability of More Online Content
Currently, only around 20,000 titles are available for
online streaming compared to more than 100,000 titles on DVDs.
Netflix's deals with Starz, Relativity Media and Epix are prime
example of the company's efforts to beef up its online content.
Netflix also recently came to terms with Disney to stream
re-runs of a variety of ABC, ABC Family and Disney Channel
shows. As additional such deals are struck, and Netflix continues
to improve its online content, more subscribers will be inclined to
choose streaming only service options. Netflix has previously
commented that the shift towards streaming services, and reduced
DVD shipments, is already expanding to mainstream subscribers.
Think our estimates could be conservative? Drag the
trend-line in the chart below to see the impact of various DVD
shipment per customer scenarios on Netflix's stock value.
More Streaming Could Mean Lower Monthly Fees
As we've noted above, a shift towards fewer DVDs mailed per
subscriber would likely come at the hands of subscribers that
choose service plans more weighted towards streaming than DVDs. As
these plans can often command a lower monthly subscription fee,
fewer DVD shipments would correspond with a reduction in
average monthly subscription fees.
Drag the trend-line in the chart below to see the impact of
various average subscription fee scenarios on Netflix's stock
value, and tell us your viewpoint in the comment box below.
complete analysis for Netflix's stock is here