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Netflix(NFLX - Get Report) has millions of subscribers in its DVD-rental-by-mail program, but its most exciting growth prospect is as a provider of a streaming service to deliver digital movies to PCs, Internet-connected TVs and consumer-electronic devices.
The company aims to convert its existing subscribers to streaming services, but industry analysts say that may be a tough to hold on to them because new providers of digital distribution of content are cropping up. Still, Netflix has been expanding its streaming offerings, signing deals with content providers such as NBC Universal and, most recently,
Walt Disney(DIS). In the third quarter, the company reported that profit jumped 26% to $38 million, as its streaming service for its subscribers grew.
Outlook: Although its shares have risen a whopping 227% this year to about $180, they're down about 9% over the past month as competitive concerns have rattled some investors.
The market for in-home entertainment is rapidly evolving and Netflix's role in that is unresolved. It remains the leading player in the market for DVD-rental-by-mail, but that business model is under attack as digital delivery gradually replaces DVDs as the dominant home-entertainment distribution channel.
So, it's key that the company's evolving streaming-service business can capture those customers. Its price-to-earnings ratio is a whopping 68, double its industry's average. Fidelity owns 9.6% of its shares, about double that of the next largest investor. Analysts are clearly split on its prospects as six rate it "buy," 15 "hold," two "underperform" and six "sell," according to FactSet.
Written by Frank Byrt in Boston.