In the following video, the Fool's Jim Mueller talks about Netflix and some valid arguments for selling the stock. Investors should always be aware of the bull and bear arguments while investigating the intrinsic value of their shares, and Jim gives us a few areas of caution with Netflix's future performance.
First is the fragility of the virtuous cycle. Netflix is able to bring in more subscribers by providing high-quality content and by offering more content. As long as memberships continue to rise, the company can continue to do well, but if the numbers drop, it would be unable to provide more content, and the whole model would collapse. This was a significant worry during the plunge of subscriptions in Q3 2011.
Then there's the competition. Netflix's business model was the first of its kind and changed the video-rental business forever. Bricks-and-mortar stores such as Blockbuster suffered as a result. Now Netflix is the one being challenged by the likes of Amazon.com and Hulu. Will those competitors have a negative impact on Netflix's earnings? That's a question investors need to examine further.
The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.