|<<Hard to know if the next stop for Neflix is $50 or $150. After the screwups they've made this year, I don't trust their management at all. They're another bad announcement away from sliding below $50 as I see it, yet if they quit shooting themselves in the foot, I can easily see NFLX climbing well over $100 again.|
I view the recent sell-off as an opportunity, since I think that NFLX's fundamental business remains intact.
2011 is shaping up to be the year of the tablet. 40 million iPads will be sold in 2011. 4 million Kindle Fires will be sold in just the last 8 weeks of 2011. And thanks to the Fire's $199 price point, the remaining tablet makers are slashing prices to compete. These lower prices will drastically expand the tablet market.
So what will people do with their tablets? By and large, they'll consume media. Both Apple and Amazon have promoted the Netflix app, and tablet sales should substantially increase the demand for Netflix's streaming content.
According to a recent article in TechCrunch, people watch videos 30% longer on tablets than on desktops.
And according to a recent report by Sandvine, Netflix accounts for 32% of internet traffic during prime time hours. This is up from 20% just a few months ago.
These are very strong secular trends, and I don't see anything on the horizon that will slow the momentum in Netflix's business.
Even if Amazon gets serious about streaming as part of its Prime service, it would be better off acquiring Netflix than starting from scratch on its own. Netflix has many advantages: Amazing user interface and recommendation engine, device ubiquity including popular devices like Xbox, first-mover in numerous international markets, etc.
Not sure where NFLX will trade in the short-run, but I think it will return to $200 over the next 2-3 years.