Downgrade For Netflix Inc. (NASDAQ:NFLX)
Netflix, Inc. (NASDAQ:NFLX), the $20 billion market capped online music and video store recorded a steep drop of 5.1 percent decrease in the value of its stock during trading on January 7. It was one of the first internet based firms, which leveraged the increasing easy availability of broadband to emerge as a video and music steaming major. It has grown respectably in the past few quarters. It had reported that 1.3 million users were added to its U.S subscriber base during its most recent quarter for which consolidated numbers were available. As of September 30’ 2013 the firm boasted of an impressive 31.1 million active customer base.
Analysts Feel Competition Can Eat Into Netflix, Inc.
The reasons for the S&P 500 index tracked firm’s huge drop in market value was due to the fact that rating agency Morgan Stanley downgraded the stock to underweight yesterday. Scott Devitt, the Morgan Stanley analyst who authored the current downgrade report has been quoted as saying that Netflix, Inc. (NASDAQ:NFLX) has to contend with growing competition who are more agile to meet the fast evolving customer usage patterns. In the report, new online streaming players like Hulu Plus, HBO Go and Amazon’s own new offering “Prime streaming video service” have been highlighted and goes on to predict increasing competition among these new and the entrenched players for attracting new customers and retain existing subscribers.
Even more thought provoking was the analyst’s opinion that these hosts of new players are likely to end up increasing the cost at which the online streaming companies would be able to buy content from TV and movie show’s from producers. This is expected to have a direct impact on Netflix, Inc. (NASDAQ:NFLX) operating margins, since the firm is now able to source quality content for its streaming business at a much lower cost due to lack of competition. The analyst report also predicts that the subscriber base in U.S is likely to grow at a much lower pace than was predicted by analysts.