Investors must not forget that the international business is still incurring losses and much of Netflix’s value is hinged on its performance in the U.S. Its high margin DVD business in the U.S. is in decline. Although the rate of decline has slowed down, we do not foresee a case where the DVD subscriber base will stabilize, let alone grow.
As far as the U.S. streaming subscription business is concerned, the overall market growth is bound to slow and rising competition will make life increasingly difficult for Netflix. Competition will not only make it tough for Netflix to gain or retain subscribers but will also impact its margins as competitors bid up the cost of content.
Although Amazon is still behind Netflix in terms of content, it is evident that the company is slowly trying to close that gap. It appears that Amazon Prime’s growing subscriber base could be a concern for Netflix in the future. We believe that as of now, Amazon presents the highest competitive threat for the company in the U.S. streaming market.