Nelson Zhu and David Wang

2/20/09

Services

Established in 1997 and headquartered in Los Gatos, California

Flat-rate subscription based DVD rentals

DVDs sent by USPS usually arrive in ~ 2 days

Some movies can be viewed instantly online

http://www.netflix.com/

Statistics

100,000 titles 10 million subscribers (Feb. 5) 55 million discs On average, Netflix ships 1.9 million DVDs to

customers each day. On February 25, 2007, Netflix announced the

billionth DVD delivery. The stock price did not jump at that time because

it was just a benchmark, not a big surprise.

Statistics

Market cap - US$1.8 billion (2008) Revenue US$ -1.365 billion (2008) Operating income US$ 91.2 million (2007) Net income US$ 66.9 million (2007) Employees 2000+ (2008) Reed Hastings, founder and CEO

Charts

The Pros

No late fees Automated on-line ordering Large selection of special interest DVDs such

as anime and foreign films Web site keeps track of your rental history -

No guessing if you already seen a movie Web site makes recommendations based on

your ratings

The Cons:

Poor/nonexistent customer service Monthly subscription fee (even if you don't rent anything) Slow turnaround time (from the time you return a movie and get

one back is approx. 1 wk.)- (throttle) Frequent renters get penalized with even slower turnaround time service deteriorates after free trial (bait and switch) Long waits on new releases No shipments on Saturday, Sunday or holidays Most DVDs are badly scratched and may not play (advice) Broken & lost DVDs through the mail Rentals do not arrive in the order requested

*Be aware that these are the most extremely citable cons

Answer to Cons

Consumer Reports magazine Feb. 2 said the online DVD rental pioneer rated No. 1 among home video viewing options. If people were as dissatisfied as the cons suggest, Netflix

would not be ranked so high. Netflix posted a 45 percent leap in fourth quarter 2008

profits, compared to the same period in 2007. Hastings said in a conference call to analysts that his

company will boost its investments "substantially" in video streaming this year.

Hastings doesn't think DVD will peak until sometime between 2013 and 2018.

Competitors

Apple TV Amazon Unbox

Movie Gallery

Competitors (cont’d)

Netflix vs. Blockbuster

Netflix vs. Blockbuster

Blockbuster has 3 million subscribers vs. Netflix’s recent milestone of 10 million subs.

Blockbuster has 9000 retail stores with 40 distribution center while Netflix has 50 shipping centers

Ability to return in store, rather than wait for the mail

Blockbuster rents video games, which recently surpassed films as an industry

Netflix vs. Blockbuster Netflix offers online streaming to Xbox 360 and

PS3 consoles in addition to instant viewing online, Blockbuster has no streaming capabilities

Amazon Unbox and Apple TV are paid streaming services while Hulu and Veoh are free

Net income for Blockbuster: -$73 million (2007) Netflix: $66.95 million

Blockbuster has more assets and is generally a larger company, but profits are significantly less

Reasons to buy

Consumer Reports magazine Feb. 2 said the online DVD rental pioneer rated No. 1 among home video viewing options.

After collecting consumer opinions about the Web's 40 largest retailers last year, Ann Arbor, Mich., research firm ForeSeeResults rated Netflix as "the cream of the crop in customer satisfaction.“

Over 90 percent of surveyed subscribers say that they would recommend Netflix to a friend.

Reasons to buy

American Customer Satisfaction Index (ACSI) The ACSI is produced by the University of Michigan’s Ross School of Business in partnership with the American Society for Quality and CFI Group. Newegg had the highest ACSI score with 88 and

Netflix’s score was 85. Amazon 88, Ebay 78

Reasons to buy The recession officially began in December 2007 according to National

Bureau of Economic Research's (NBER) Business Cycle Dating Committee- NBER is the largest economic research organization in the U.S.

National Bureau of Economic Research Dec 21, 2007- 28.10

Feb 19, 2009- 37.09

Netflix, Inc. Announces Authorization Of New $150 Million Stock BuybackThursday, 6 Mar 2008 04:30pm EST Netflix, Inc. announced that its Board of Directors has authorized a stock repurchase program that enables the Company to purchase up to $150 million of its common stock through the end of 2008. This new authorization is in addition to the $100 million repurchase authorization announced in January. 

http://www.reuters.com/finance/stocks/keyDevelopments?symbol=NFLX.O&pn=4

Reasons to buy

In Q4 2008, everyone knew that there was a recession.

Net income rise to $22.7 million in Q4 2008, up from $15.7 million in Q4 2007.

Revenue was up by 19 percent Subscriber growth was pegged at an amazing 26

percent. Q4 saw 9.4 million subscribers, decimating its own

forecast of ending Q4 with 9.15 million customers

Sources

http://pickyinvestor.blogspot.com/2008/03/when-did-recession-start_28.html

http://www.manuelsweb.com/netflix.htm http://www.cdfreaks.com/news/15455-Netflix-

recession-proof.html http://www.engadgethd.com/2009/01/26/

netflix-profit-up-45-in-q4-nears-10-million-total-subscribers/