With Consumers Paring Back, Netflix Business Gets Stronger

If people are looking to cut back on discretionary spending, the Netflix (NFLX) mail order DVD service can obviously help. Rather than spending $30 at a theater for a couple to see a movie and order some snacks, a Netflix subscription can cost half that for an entire month. Not surprising, fourth quarter sales and earnings at Netflix (reported last night) were very impressive and the stock is soaring today, trading up near $35 per share.

Despite being relatively recession-proof, Netflix stock at current levels doesn’t get me very excited from a value standpoint. One can certainly justify a 2009 P/E north of 20, as it is today, but as a value investor that is not cheap enough for me to get overly excited, despite the strong business fundamentals. I will, however, continue to make good use of my Netflix subscription, and I highly recommend it.

Full Disclosure: No position in Netflix at the time of writing, but positions may change at any time

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4 Thoughts on “With Consumers Paring Back, Netflix Business Gets Stronger

  1. Pingback: Tuesday Money Links

  2. Rubens on January 28, 2009 at 5:49 PM said:

    Does the Netflix service have any advantage over the Blockbuster one? Or is pretty much the same thing for the same price? I’ve been using Blockbuster by mail for years and have no complaints.

  3. Chad Brand on January 29, 2009 at 8:40 AM said:

    Not really. The price plans tend to track each other and if you haven’t had any issues with Blockbuster there probably would not be any reason to switch.

  4. I think what’s happening lately is the dawning on users and investors how well the
    “Watch Now” streaming service works and how popular it’s becoming.

    From their last earnings report, apparently it’s a lot cheaper for Netflix to stream a film than it is to mail it and from the consumer’s side, the quality of the stream and the ability to choose on demand is a big plus considering it’s already included in their subscription.

    The challenge for Netflix will be ramping this up to a greater portion of their catalog both in terms of delivery and licensing. Already there have been reports of Saturday night overloads on their servers, but I’m sure if they throw enough money at it, they’ll fix it. The next problem will be, are our “internet pipes” robust enough to handle all of the heavy digital traffic that streaming movies use up?

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