Best Stock for 2009: Netflix

Which stocks are looking fine in ’09? Discover all our Foolish ideas for The Best Stocks for 2009.

There are two schools of thought heading into next year, and you don't want to flunk out of either one.

The optimists believe that the economy and global stock markets will bottom out next year. Consumer-facing stocks will rise again. The pessimists feel that things will get even worse in 2009. Only the companies that deliver real value to homebound worrywarts will thrive.

No matter what school of thought happens to be your alma mater, how can you not like Netflix (Nasdaq: NFLX  ) ?

In bad times
Unemployment creeps higher in 2009. Disposable income dries up. We become homebodies as "dinner and a movie" becomes simply raiding the pantry and watching TV.

Believe it or not, that seemingly cruel climate still makes for ideal growing conditions for Netflix.

The cost for the service is certainly reasonable, with the average customer paying just $13.60 a month. It may not be the cheapest entertainment subscription service out there -- Sirius XM Radio (Nasdaq: SIRI  ) is slightly cheaper -- however, for less than a pair of tickets at the local multiplex, Netflix subscribers enjoy a smorgasbord of DVD rentals and Web-based streams. Now that most major networks are streaming their shows online for free, consumers may be more likely to cancel their pricier cable and satellite television plans than letting Netflix go.

Netflix also has it all over other digital streaming services: 12,000 of the more than 100,000 DVDs in the Netflix library are available for online streaming at no additional cost. Sure, the movies aren't typically the first-run blockbusters, but it's hard to argue the price. Apple (Nasdaq: AAPL  ) , Amazon.com (Nasdaq: AMZN  ) , and Blockbuster (NYSE: BBI  ) all charge extra for their digitally-delivered flicks.  

It also doesn't hurt that Netflix will stream through so many existing home theater appliances -- like TiVo (Nasdaq: TIVO  ) DVRs and Microsoft (Nasdaq: MSFT  ) Xbox 360 video game consoles -- instead of just PC viewing options.

In good times
Netflix continues to grow. Earnings should clock in at $1.29 a share this year after posting a profit of $0.97 a share last year. Analysts see net income of $1.48 a share in 2009.

The catch here is that things could be a lot better. Wall Street's projections are taking into account that Netflix lowered its year-end subscriber count target twice in October. Don't cry for Netflix. The company will still see its subs grow by 18% to 22% in 2008, from the 7.5 million members it served when the year began.

Churn also held steady in its latest quarter, so the perfect storm of a teetering economy and growing availability of digitally-delivered content isn't eating into the company's business. It also didn't sting comps at real-world rival Blockbuster. In other words, folks are still hungry for borrowed DVDs.

Naturally, a buoyant economy would be better for Netflix. New customers would trickle in. Existing members would upgrade their membership plans to have more physical DVDs out at a time. Just because Netflix is a company that is built for a bear doesn't mean that it can't run with the bulls.

The ultimate testimonial
I'm not just a fan of Netflix. I have been both a subscriber and a shareholder since 2002. Put simply, Netflix is one of the few unstoppable brands out there. It's a company that delivers entertainment, one red envelope mailer at a time.

Now that Netflix is way ahead of the competition in delivering digital value, it will be hard for anyone to catch it. You can, of course. You can enroll today into both schools of thought for 2009. The dual diplomas look good on you.

If you see things my way, head on over to the Motley Fool CAPS community and give Netflix an outperform rating. And if you don't, head on over anyway, call underperform, and tell us why.

Other Netflix headlines:

Microsoft is a Motley Fool Inside Value recommendation. Netflix, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He also owns shares in TiVo. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 18, 2008, at 11:57 AM, jmt587 wrote:

    Bet you a dollar you're wrong!

  • Report this Comment On December 18, 2008, at 7:35 PM, esymoni wrote:

    Watch the streaming video, it sucks.. Talk about someone with their head up manamgents but.

  • Report this Comment On December 19, 2008, at 11:15 AM, Tomc990 wrote:

    I think this guy wrote his article at the end of 2007 and just came back to update the dates and earnings values. Blockbuster is the one "borrowed DVD" retailer that provides the trifecta of entertainment for cost-conscious consumers. I would expect the economy is going to send more people away from subscription services and into the stores for a-la-carte movie rentals.

    This guy bleeds red but it's a very bright, Netflix red.

  • Report this Comment On December 20, 2008, at 5:10 AM, nytestorm123 wrote:

    WOW!! This guy does have a love for Netflix. LOL!! It's a mail order business that is SLOW!!

    Hey family it's Tuesday let's watch the latest new movie (since Tuesday is when most new movies are available for rent). We can go to the local Blockbuster store and get it NOW or put in a request to get it in the mail, say Friday.

    Good Luck

  • Report this Comment On December 29, 2008, at 6:23 PM, psec wrote:

    We cancelled our Blockbuster membership for Netflix. Blockbuster charges extra for everything and is usually out of what we wanted to watch. The people are rude, the stores aren't convenient to us, and there's nothing worse than spending half an hour playing "what do you want to watch?" The ability to have Netflix just send it to us - the best. One less thing I have to deal with. Plus they have an incredible selection of flicks and British TV that can't be matched.

    And if we're caught without something and need it RIGHT NOW? Redbox, people. Redbox. A buck a day, easy rent, easier return. Death to Blockbuster!

  • Report this Comment On January 03, 2009, at 3:38 PM, snkscore wrote:

    Maybe Netflix can see an uptick in the short term, in the same way that everyone seemed to love AOL, ignoring the fact that the company had absolutely no possability of being a growing business for more than a couple years.

    The same is true of Netflix.

    DVDs are only going to be around for the near future. Same for BluRay and anything after that. Obviously we are moving away from physical media. In 10 years almost no one will deal with renting a physical storage medium to watch a movie, you will just stream it over the internet.

    But Netflix DOES that you say???

    Yes, they do, but once people stop needing a service to send out the DVDs anyone can stream the media (read: no movie studio is going to allow netflix to profit off their movies when they can just stream them to customers directly).

    I would guess there is a 20% chance that I am wrong, and in 10 years people will still be renting movies on DVD, but you only have to look to the music industry to see that people don't want the physical media, and it will soon be gone.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 797215, ~/Articles/ArticleHandler.aspx, 9/19/2014 10:07:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement