DVD by-mail rental king Netflix (NASDAQ:NFLX) continues to ride a wave of success. This morning the company announced that it ended 2003 with almost 1.5 million subscribers -- a 74% increase over 2002!

In Netflix's widely tracked home market, the San Francisco Bay Area, household penetration grew to 5.9%, up from 5.4% in the prior quarter, and up from 3.8% last year. While critics keep looking for Netflix's good fortunes to end, household penetration continues to grow. With national penetration at just 1.3%, the opportunity ahead looks promising, although Netflix's competition is muddying the outlook.

Investors will want to pay attention to two sharks in the by-mail DVD market. Wal-Mart (NYSE:WMT), which launched its service in June, offers a Netflix-like plan for $18.76 a month -- $1.23, or 6%, less than Netflix. Viacom's (NYSE:VIA) Blockbuster matches Netflix's monthly rate but allows customers to have four movies out at a time instead of three. It's too early to determine if either service will take a bite out of Netflix's growth.

The movie studios are testing the rental business waters, too. Disney-owned (NYSE:DIS) MovieBeam, in limited markets, offers an in-home receiver that provides 100 new video release and high-demand movies for a monthly subscription fee of $6.99, plus $2.49 to $3.99 per movie for a 24-hour rental. Most of the major studios offer their movies through MovieBeam.

For movies downloaded over broadband to your computer, Movielink is the star. A joint venture between Metro-Goldwyn-Mayer (NYSE:MGM), Sony (NYSE:SNE), Time Warner (NYSE:TWX), Viacom, and soon-to-be General Electric's (NYSE:GE) Universal Studios, it costs from $2.99 to $4.99 for a 24-hour movie rental.

With competition from so many heavyweight corporate names, including the content providers themselves, you'd think Netflix's stock would reflect the threats. Not so, though. While Netflix is about 8.5% off its all-time high of $61, it's still substantially above its 52-week low of $9.60. Plus, it sells for an amazing 43-times the highest analysts' estimates for 2004.

Given the tsunami of competition aimed right at Netflix, savvy investors should consider David Gardner's advice for Motley Fool Stock Advisor subscribers and sell here. Netflix's current price assumes too many happy endings.

W.D. Crotty is a movie buff. He owns stock in Disney and frequents The Motley Fool discussion boards. For a 30-day free trial to the boards, click here. You can e-mail W.D. at wdcrotty@fool.com.