Below are key drivers of Netflix's value that present opportunities for upside or downside to the current Trefis price estimate for Netflix:
Netflix's U.S. Streaming Subscribers: Currently we forecast Netflix's U.S. streaming subscriber base to increase from around 27 million in 2012 to about 45 million by end of the Trefis forecast period. There could be more than 15% downside to the Trefis price estimate if this figure were to increase to only about 35 million instead of 45 million. This could if the market growth for streaming slows down and competition weighs heavy in the future. On the other hand there could be 20% upside to the Trefis price estimate if Netflix can blow past expectations and capture more than 45% of U.S. households by end of the Trefis forecast period, implying a subscriber base of about 58 million U.S. subscribers.
Domestic Streaming Contribution Margin: Currently we forecast this figure to rise from about 19% in 2012 to close to 29% by the end of our forecast period. However there could be a downside of about 10% to the Trefis price estimate if these cost were to reach a figure of only 25% of total revenues. On the other hand, there could be upside of about 20% if this figure was to increase to 35% instead.