Why Fewer DVD Shipments Could Boost Netflix Stock

We currently have a Trefis price estimate of around $85 for Netflix's stock, about 17% below the current market price of $103.
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Netflix (NFLX) - Get Report, an online movie rental company, competes with pay-TV providers like Comcast (CMCSA) - Get Report, Dish Network (DISH) - Get Report, DirecTV (DTV) and Time Warner Cable (TWC) to offer latest film and TV content to its subscribers. We currently have a Trefis price estimate of around $85 for Netflix's stock, about 17% below the current market price of $103.

Trefis members have created forecasts for two key drivers of Netflix's stock over the last week: (1) Number of DVDs Mailed per Netflix Subscriber and (2) Netflix Subscribers. The members' forecasts suggest that Number of DVDs Mailed per Netflix Subscriber will trend below the Trefis estimate, while Netflix Subscribers will trend above. These projections suggest a combined upside of around 34% for Netflix's stock.

Netflix's stock is quite sensitive to (1) Number of DVDs Mailed per Netflix Subscriber and (2) Netflix Subscribers. Below are charts showing recent estimates created by Trefis members for the two drivers in detail.

1. Number of DVDs Mailed per Netflix Subscriber

The average of forecasts for Number of DVDs Mailed per Netflix Subscriber created by Trefis members indicated a projected decrease from around 5.6 per month in 2010 to 3.7 per month by the end of the Trefis forecast period, compared to the baseline Trefis estimate of a decrease from around 6 per month in 2010 to 4.4 per month by the end of the Trefis forecast period. The member estimates imply an upside of 7% to the Trefis price estimate for Netflix's stock. Lower DVD shipments per subscriber translates to an upside for Netflix since the company continues to collect monthly subscription fees, but spends less on mailing out DVDs. In the past, Number of DVDs Mailed per Netflix Subscriber has decreased from 8.5 per month in 2006 to 7 per month in 2009.

You can drag the forecast trendline above to express your own view, and see the sensitivity of Netflix's stock to Number of DVDs Mailed per Netflix Subscriber.

Our

complete analysis for Number of DVDs Mailed per Netflix Subscriber is here.

2. Netflix Subscribers

The average of forecasts for Netflix Subscribers created by Trefis members indicated a projected increase from around 23 million in 2010 to around 49 million by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from 18 million in 2010 to around 39 million by the end of the Trefis forecast period. The member estimates imply an upside of 27% to the Trefis price estimate for Netflix's stock. In the past, Netflix Subscribers has increased from about 4 million in 2005 to around 12 million in 2009.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of Netflix's stock to Netflix Subscribers.

Our

complete analysis for Netflix's stock is here.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.