• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14
  15. 15
    15
  16. 16
    16
  17. 17
    17
  18. 18
    18
  19. 19
    19
  20. 20
    20
  21. 21
    21
  22. 22
    22
  23. 23
    23
  24. 24
    24
  25. 25
    25
  26. 26
    26
  27. 27
    27
  28. 28
    28
  29. 29
    29
  30. 30
    30
  31. 31
    31
  32. 32
    32
  33. 33
    33
  34. 34
    34
  35. 35
    35
  36. 36
    36
  37. 37
    37
  38. 38
    38
  39. 39
    39
  40. 40
    40
  41. 41
    41
  42. 42
    42
  43. 43
    43
  44. 44
    44
  45. 45
    45
  46. 46
    46
  47. 47
    47
  48. 48
    48
  49. 49
    49
  50. 50
    50

Netflix Case Study

Extracts from this document...

Introduction

Netflix Presented by: Gatos Petros Georgiadi Despina Moralis Despina Vomvas Ioannis Xenarios Nicolas Submitted to: Professor R. Aldous Business Strategy MG 4940 May 27, 2005 Table of Contents Introduction 1 1. Company Profile 2 2. Current Strategy Analysis 4 3. Internal Analysis 8 3.1 Operational Strengths & Weaknesses 8 3.2 Financial Strengths & Weaknesses 9 3.3 Organizational Strengths & Weaknesses 13 3.4 Marketing Strengths & Weaknesses 14 3.5 Competitive position of Netflix across time 14 4. External Analysis 16 4.1 Economic Characteristics 16 4.2 Competitive Analysis (Porter 5 Forces) 18 4.3 Competitive Positions of Major Companies 19 4.4 Competitor Analysis 20 4.5 Key Success Factors 21 4.6 Industry Prospects and Overall Attractiveness 23 5. SWOT Analysis 25 6. Recommendations 27 7. Decision about Stock Purchase 28 References 31 Introduction This case study analyses the case of Netflix Company. This is an online DVD movie rental company. It offers innovative products and services concerning the entertainment sector and, more particularly, the movie sector. Netflix Company is considered to be a successful company. However, it will be facing stronger competition in the near future, both from direct competitors that offer all will offer identical products and services, and from indirect competitors that offer substitutive products and services through new technologies, both ethical and unethical. Therefore, the point of this case study analysis is to identify and evaluate current Netflix Company's position and strategy, comment about the future concerning the increasing (direct and indirect) competition in the context of analyzing external and internal company's environment and make any useful recommendations. 1. Company Profile Netflix was based is Los Gatos, California. Reed Hastings, current CEO, and colleagues formed Netflix in 1997 and launched the subscription service in 1999 (Thompson et al, (2005) Case 2: Netflix). It belongs to AMEX Internet concerning its stock index membership, as a company of service sector and recreational activities industry, according to NYSE listing (http://finance.yahoo.com/q/pr?s=NFLX). ...read more.

Middle

NA 1000% 400% 579% 214% 80% 43% 23% 15% 12% VHS rental NA 7% 4% -5% -11% -15% -17% -15% -15% -20% Total Rental NA 8% 5% 2% 5% 6% 5% 4% 3% 1% % of total rental market DVD rental 0% 0% 1% 7% 22% 37% 50% 60% 67% 74% VHS rental 100% 100% 99% 93% 78% 63% 50% 40% 33% 26% Exhibit 2 shows clearly that DVD penetration is faster growing since 2000. Particularly, this penetration will dominate households since 2004. These figures indicate that DVD demand will be increasing more and more. Exhibit 4.2: DVD Growth and Penetration 1997 1998 1999 2000 2001 2002E 2003E 2004E 2005E 2006E DVD households (millions) 0.3 1.2 4.6 12.6 24.8 36 45.7 53.6 61.2 69 Growth NA 300% 283% 174% 97% 45% 27% 17% 14% 13% TV households (millions) 100.2 102.1 103.2 104.8 106 107.2 108.4 109.7 110.9 112.2 Growth NA 2% 1% 2% 1% 1% 1% 1% 1% 1% DVD penetration 0% 1% 4% 12% 23% 34% 42% 49% 55% 61% Given that movies rental market has a relative stable market with a slight growth rate, rental movie companies should think what is the most effective channel of distributing their products and services. Online movie rental companies need first, the demand of people watching movies through DVD. This demand seemed to be fair enough as it has been described and presented. The point is how many other channels exist and how competitive they are. More particularly, except online rental, movie fans have DVD's available though a variety of channels presented in the next exhibit. Exhibit 4.3: DVD movies channels Channels Providers Physical retail store and stand-alone outlet sales Wal-Mart, Best Buy Physical retail store rental outlets Movie Gallery, Blockbuster Video Web sites of both brick-and-mortar stores and Internet-only retailers Amazon.com Online rental services Netflix, Wal-Mart PC downloads from Web sites Movielink, Kazaa It is easy to notice that DVD growth favors online movie rental business, as this business is driven by DVD demand. ...read more.

Conclusion

Moreover, if one takes into consideration that stock price was due to investors' fears for strong competition, the conclusion could be that as soon as investors realize that Netflix reacts effectively to competition and sustains its competitive advantage, then stock price will start to rise. In other words, current level of stock price can be considered as low. Therefore, it is strongly recommended to buy now Netflix's stock. In the next figures, analysts' opinions are presented. Figure 7.3, Analysts' opinions RECOMMENDATION SUMMARY* Mean Recommendation (this week): 3.3 Mean Recommendation (last week): 3.3 Change: 0.0 General Retailers Industry Mean: 2.41 Sector Mean: S&P 500 Mean: 2.50 * (Strong Buy) 1.0 - 5.0 (Strong Sell) Source: http://finance.yahoo.com/q/pr?s=NFLX Netflix is above average in 1-5 scale of buy-sell. Therefore, analysts think that stock price will fall. This analysis is opposite to our recommendation. However, our recommendation has a long-term horizon, as it is believed that the current level of stock price doesn't reflect future business likely performance. Figure 7.4, Analysts' estimates Earnings Est Current Qtr Jun-05 Next Qtr Sep-05 Current Year Dec-05 Next Year Dec-06 Avg. Estimate 0.01 0.10 0.07 0.38 Low Estimate -0.13 0.06 -0.11 -1.00 High Estimate 0.07 0.30 0.19 0.81 Year Ago EPS 0.11 0.35 0.57 0.07 Revenue Est Current Qtr Jun-05 Next Qtr Sep-05 Current Year Dec-05 Next Year Dec-06 Avg. Estimate 163.43M 171.92M 679.10M 890.26M Low Estimate 161.01M 167.07M 664.30M 823.70M High Estimate 165.00M 176.34M 691.00M 947.20M Year Ago Sales 120.32M 141.64M N/A 679.10M Sales Growth (year/est) 35.8% 21.4% N/A 31.1% Source: http://finance.yahoo.com/q/pr?s=NFLX Indeed, sales and earnings figures predictions seem to be promising for future price increasing level. However, P/E ratio of Netflix remains extremely high compared to industry figure (185 compared to 18.28) indicating a high current price that will starts to fall. However, P/E can start falling in order to converge to industry ratio by increasing EPS. Therefore, it is not possible to draw a unique conclusion through P/E study. However, we still believe that on the long run, Netflix price level will be higher than the current. Therefore, we recommend for buying company stock. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Management Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Management Studies essays

  1. golden key case case study

    A stakeholder is a party who is interested in organization activities and affected, or can be affected by, it And there are internal and external stakeholders (Appendix 2) and they have different interests Stakeholder Examples of interests Owners private/shareholders Profit, Performance, Direction Government Taxation, VAT, Legislation, Low unemployment Senior Management

  2. Analysis of Agora supermarkets of Bangladesh and the potential for online marketing.

    � The management in the mid 2000 has taken the bold step of trying not to focus on the usual corporate mantra of "maximising shareholder value". The company's mission statement reads, "Our core purpose is, 'To create value for customers to earn their lifetime loyalty'.

  1. Jollibee case study

    Since the industry is full of all different kinds of fast foods and with different brands, then the buyer can actually buy similar products from different resturants, in considering of their taste, presference, and demands. Then the buyers could choose their preferable products and maybe convice their friends to do the same.

  2. Donner Company is a Service oriented Manufacturing Company that makes printed circuit boards as ...

    o Prototyping will be done for all "high risk" orders and hence the rejects internally and externally will mainly be limited to low volumes. Hence when the flow-shop finally does the mass production of these capacities the reject rates are expected to be significantly lower.

  1. A Case Analysis: Starbucks Growth Destroyed Brand Value?

    In other words, if the company is able to involve them and make the most benefits out of them, there will be better outcomes as the problems are solved. - Employees: They can be involved in Starbucks' decision making by formal meetings such as in-house conference of Starbucks.

  2. Entrepreneurship Case Study - Bill Gates.

    According to "Bernstein research", "Microsoft" is perhaps the most progressive company among the other companies working in technology field(1993). Arrogant intellectual intolerance for employees adds mystery on his image. His attitude to work and continuing commitment to excellence were fundamental factors in his success, though not always added the popularity on his personality.

  1. We will perform a SWOT Analysis to determine Ben & Jerrys strengths, weaknesses, opportunities, ...

    Ben & Jerry?s was still unknown in Japan and it did not have the budget for a marketing campaign 4. Sales would rely on promotional efforts by 7-Eleven, but the company was making no specific commitments for such efforts 5.

  2. Management principles and theories and their application to the construction industry.

    This is why it is important for a newly established company to adopt these factors as early as possible. A good organisational structure brings about a sense of purpose.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work