As an investment, Netflix
The current concern, culminating in Netflix's most recent quarterly results, seems to be that Blockbuster
Netflix's infrastructure consists of very carefully laid plans to offer a great service to its subscribers -- they gain tons of variety given the sheer number of titles, popular or obscure, that they can queue up, a great way to share movie recommendations with friends as well as find recommendations and reviews utilizing community intelligence, and a long-running record of the movies they've watched through the service. These are good examples of what makes Netflix incredibly sticky.
The company has continued to innovate, too. Netflix subscribers can buy some of their favorite movies, previously viewed, on the cheap (I've taken advantage of that feature quite a few times myself). There's also the nascent Watch Now feature, which allows users to stream some movies in their queues to their computers instantaneously.
Of course, this underlines many of Netflix's competitive concerns, above and beyond old-school Blockbuster. Cable companies' video-on-demand services pose a threat, as do downloading options from companies like Apple
Those competitive concerns haven't been lost on Netflix, either -- its shares have fallen 26% in the last year. Of course, it's arguable that that's presenting a good opportunity to buy for those investors who believe this company is a great innovator that can keep up the magic for the long term. When you consider many of the companies bearing the reputation of being high-growth innovators (maybe Amazon and Apple), Netflix's forward P/E of 22 and its PEG ratio of 1.16 don't sound too terribly unreasonable.
Furthermore, the investing thesis improves when you consider Netflix is profitable and has an impressive balance sheet to speak for it. Let's not forget it currently has nearly $6 per share in cash and no debt.
I know there are plenty of Netflix bears at the moment, and I hear from some of them sometimes. For example, I've enjoyed exchanging a few emails with a reader named Brandon, who recently pointed out that maybe Blockbuster and Netflix are just going to beat up on one another, allowing the real threat to swoop in from an outside source. That, of course, is a very reasonable concern for both those companies.
However, given Netflix's strong management and innovative nature, I don't think it's wise to underestimate the power of this company to deliver continued returns to its shareholders for years to come.
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Netflix and Amazon.com are Motley Fool Stock Advisor recommendations.