Nelson Zhu and David Wang

1

• Nelson Zhu and David Wang
• 2/20/09

2
Services

• Established in 1997 and headquartered in Los
  Gatos, California
• Flat-rate subscription based DVD rentals
• DVDs sent by USPS usually arrive in 2 days
• Some movies can be viewed instantly online
• http//www.netflix.com/

3
Statistics

• 100,000 titles
• 10 million subscribers (Feb. 5)
• 55 million discs
• On average, Netflix ships 1.9 million DVDs to
  customers each day.
• On February 25, 2007, Netflix announced the
  billionth DVD delivery.
• The stock price did not jump at that time because
  it was just a benchmark, not a big surprise.

4
Statistics

• Market cap - US1.8 billion (2008)
• Revenue US -1.365 billion (2008)
• Operating income US 91.2 million (2007)
• Net income US 66.9 million (2007)
• Employees 2000 (2008)
• Reed Hastings, founder and CEO

5
Charts
6
The Pros

• No late fees
• Automated on-line ordering
• Large selection of special interest DVDs such as
  anime and foreign films
• Web site keeps track of your rental history - No
  guessing if you already seen a movie
• Web site makes recommendations based on your
  ratings

7
The Cons

• Poor/nonexistent customer service
• Monthly subscription fee (even if you don't rent
  anything)
• Slow turnaround time (from the time you return a
  movie and get one back is approx. 1 wk.)-
  (throttle)
• Frequent renters get penalized with even slower
  turnaround time
• service deteriorates after free trial (bait and
  switch)
• Long waits on new releases
• No shipments on Saturday, Sunday or holidays
• Most DVDs are badly scratched and may not play
  (advice)
• Broken lost DVDs through the mail
• Rentals do not arrive in the order requested
• Be aware that these are the most extremely
  citable cons

8
Answer to Cons

• Consumer Reports magazine Feb. 2 said the online
  DVD rental pioneer rated No. 1 among home video
  viewing options.
• If people were as dissatisfied as the cons
  suggest, Netflix would not be ranked so high.
• Netflix posted a 45 percent leap in fourth
  quarter 2008 profits, compared to the same period
  in 2007.
• Hastings said in a conference call to analysts
  that his company will boost its investments
  "substantially" in video streaming this year.
• Hastings doesn't think DVD will peak until
  sometime between 2013 and 2018.

9
Competitors

• Apple TV Amazon Unbox
• Movie Gallery

10
Competitors (contd)
11
Netflix vs. Blockbuster
12
Netflix vs. Blockbuster

• Blockbuster has 3 million subscribers vs.
  Netflixs recent milestone of 10 million subs.
• Blockbuster has 9000 retail stores with 40
  distribution center while Netflix has 50 shipping
  centers
• Ability to return in store, rather than wait for
  the mail
• Blockbuster rents video games, which recently
  surpassed films as an industry

13
Netflix vs. Blockbuster

• Netflix offers online streaming to Xbox 360 and
  PS3 consoles in addition to instant viewing
  online, Blockbuster has no streaming capabilities
• Amazon Unbox and Apple TV are paid streaming
  services while Hulu and Veoh are free
• Net income for Blockbuster -73 million (2007)
  Netflix 66.95 million
• Blockbuster has more assets and is generally a
  larger company, but profits are significantly
  less

14
Reasons to buy

• Consumer Reports magazine Feb. 2 said the online
  DVD rental pioneer rated No. 1 among home video
  viewing options.
• After collecting consumer opinions about the
  Web's 40 largest retailers last year, Ann Arbor,
  Mich., research firm ForeSeeResults rated Netflix
  as "the cream of the crop in customer
  satisfaction.
• Over 90 percent of surveyed subscribers say that
  they would recommend Netflix to a friend.

15
Reasons to buy

• American Customer Satisfaction Index (ACSI) The
  ACSI is produced by the University of Michigans
  Ross School of Business in partnership with the
  American Society for Quality and CFI Group.
• Newegg had the highest ACSI score with 88 and
  Netflixs score was 85.
• Amazon 88, Ebay 78

16
Reasons to buy

• The recession officially began in December 2007
  according to National Bureau of Economic
  Research's (NBER) Business Cycle Dating
  Committee- NBER is the largest economic research
  organization in the U.S.

Feb 19, 2009- 37.09
National Bureau of Economic Research
Dec 21, 2007- 28.10
Netflix, Inc. Announces Authorization Of New 150
Million Stock BuybackThursday, 6 Mar 2008
0430pm EST  Netflix, Inc. announced that its
Board of Directors has authorized a stock
repurchase program that enables the Company to
purchase up to 150 million of its common stock
through the end of 2008. This new authorization
is in addition to the 100 million repurchase
authorization announced in January. 
http//www.reuters.com/finance/stocks/keyDevelopm
ents?symbolNFLX.Opn4
17
Reasons to buy

• In Q4 2008, everyone knew that there was a
  recession.
• Net income rise to 22.7 million in Q4 2008, up
  from 15.7 million in Q4 2007.
• Revenue was up by 19 percent
• Subscriber growth was pegged at an amazing 26
  percent.
• Q4 saw 9.4 million subscribers, decimating its
  own forecast of ending Q4 with 9.15 million
  customers

18
Sources

• http//pickyinvestor.blogspot.com/2008/03/when-did
  -recession-start_28.html
• http//www.manuelsweb.com/netflix.htm
• http//www.cdfreaks.com/news/15455-Netflix-recessi
  on-proof.html
• http//www.engadgethd.com/2009/01/26/netflix-profi
  t-up-45-in-q4-nears-10-million-total-subscribers/