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Netflix, Inc. Message Board

  • itmisc2006 itmisc2006 Apr 24, 2013 8:52 AM Flag

    Why Netflix Is Not Overvalued

    One must believe that I have absolutely gone mad to state that Netflix (NFLX) with a current PE ratio of ~520 is actually not overvalued (and I am sure I will have the comments proving it). However, I will explain how it is I come to that conclusion, in that actually, there is much more to Netflix's PE value than meets the eye.

    Netflix has recently stated in the latest earnings report that family packages may be re-priced in the $12 per month range for streaming packages that allow more than one (and potentially up to four) streaming viewings at a time. This way the kids are able to watch their latest animated flick, while Mom & Dad can watch whatever they like upstairs. Even thinking of an increase of $4 up to $12 a month would not deter me away from subscription, as there are times with my family that we are streaming two or more movies at once, and with small kids, it saves the pocket book in continually renting or purchasing movies for those rainy days indoors.

    Now Reed Hastings has stated that he will not move away from the $8 a month subscription, however, with the new popular Netflix Original content, the latest Disney licensing agreement, as well as a large library content, one can easily argue that paying $12 a month for the current service would still be a deal. However, Reed is looking to continue to move Netflix into as many households as possible, and with over 115 Million households (2010 census) in the US, Netflix is nearing 30% of households (~ 29 Million subscriptions at Q1 earnings call).

    Though Reed Hastings is keeping the low subscription rate at the $8 per month all you can view rate, one could easily consider an increase of $2 to $4 at some point in the near future. Particularly since there is already a move to a family plan of streaming at $12 a month (This is also a great way for Netflix to test the price sensitivity of its customers to a subscription price increase). Moreover, evaluating the effects of a subscription increase provides a m

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