Their price hike and more specifically their mishandling of their price hike dulled the shinning armor a bit. Then the qwikster debacle (or however you spell it) was a second ding. What has happened, is this the end of Netflix … no way!
Netflix will learn from these missteps. They will get a rock star customer service team in place, and they will reap the benefits from both of these issues. Here are the big changes I see:
1. Higher price creates margin. Margin is the key to building a big business. With it, you can run more advertising, acquire more customers, run promotions, and build up cash. High margin businesses are worth more and they will do more. For startups, you will make decisions early on, high margin or low margin … remember that high margin is always more interesting … ALWAYS!
2. Internet TV and movie distribution has much more upside. Americans watch over 5 hours of TV a day. Puke! But the reality is that this is the truth. Moving more of that to the web is inevitable. Moving the ad dollars to the web is inevitable. Netflix will win big on both of these points. For Startups, you can either try to make a market or get in the way of a market that is being made, both are interesting, but the later allows for you to grow without the same level of investment. Think about all of the eCommerce companies that got to claim 20% per year growth just because eCommerce was growing by 20%.
3. Netfilx will grow its user base 4x in the next 3 years. This ties to the two points above and the most applicable for investors (note, I do not invest in Netflix) … Netflix will grow organically in a dramatic way over the next 3 years, and at a much higher margin. $80 is a discount for this stock. Hmm, perhaps I will go out and be an investor now.
Moral of the story here. Wall St is full of lemmings. Lemmings on the way up, lemmings on the way down. Netflix is leveraging the social platform they have built that drives real sales and real performance. Yes, they made some missteps. But you can bet on the fact that they will continue to learn as they have done for the last 10 years and they will be bigger and better than ever!