The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK ( Trefis) -- Netflix's ( NFLX) stock currently stands around $80, a significant drop from where it used to be before earnings, and a huge decline from where it used to be few months back. What does this really mean for business in terms of fundamentals? Based on our valuation, the current market price for Netflix's stock implies an effective halt in U.S. subscriber base expansion, no significant pickup in international subscriber additions and a significant rise in content acquisition costs. We don't believe this bearish scenario will ultimately unfold as the company is investing heavily in its international expansion as well in improving its content library. Whatever the case, we believe that Netflix's rivals such as Amazon ( AMZN) and Dish Network's ( DISH) Blockbuster could benefit significantly during this time of pessimism on Netflix's stock and service.
Our revised price estimate of $142 implies a premium of about 80% to the market price. See our full analysis for Netflix. Below we detail the bearish scenario that would justify its current market price.
While subscriber growth has received the most attention, investors and analysts have long speculated that the rising content acquisition costs for Netflix will hamper its growth. We have already incorporated a significant increase in the future, and we believe the market is pricing rising costs in excess of the expected uptick in 2012 due to the U.K. expansion and increased efforts to bolster its domestic library. Do such expectations make sense? Will Netflix change so radically and not be able to correct its missteps? Click here to find out how a company's products impact its stock price at Trefis Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.