Netflix Finds Value In Contrarian Approach

Netflix (NFLX) is a surprising success considering one analyst calls its business model lame and the company's spokesman calls it lucky.

Yet for competitors such as Blockbuster (BBI), the Netflix story offers lessons in well-timed innovation.

Michael Pachter, research analyst with Wedbush Morgan, says that Netflix has been incredibly serendipitous, with much of the success due to founder and CEO Reed Hastings' vision and his persistence. In fact, the company's success is even more shocking considering how unsexy the business idea was at its conception.

"There are plenty of guys that have visions that don't turn out to be right. So when I say he was lucky, I mean that Reed had an idea that sounded lame to me," Pachter said. "The vision of renting movies over the Internet is pretty simple and pretty lame. Taking that and turning it into digital delivery of their catalog and offering it as free as a substitute for the physical copy is brilliant."

While the S&P 500 has dropped 10% this year, Netflix shares have surged 45% and the stock now sits at a new 52-week high. But even without using the share price as an indicator, it's obvious that Netflix is doing something right. The online DVD-rental company recently topped 10 million subscribers, all of which have bought into the simple business model.

No matter how the company's success is viewed, there is something everyone can learn from Netflix, a name investors have already come to adore (and not just because a DVD copy of The Dark Knight was delivered in the mail during the same week it was released in stores).