Why Netflix Could Dominate Home Entertainment

Posted by Adam Sharp - Thursday, June 2nd, 2011

Ifnetflix-chart you've owned NFLX for the past few years, hat's off to you. The stock was below $20 in October 2008. Today it's trading at $272.70 (chart right, click to enlarge).

Until I had Netflix streaming on a big screen TV in my living room, I didn't understand just how big of an impact it could have on the entertainment industry.

I use a PlayStation 3 to stream the service, but internet-connected Blue Ray players and other gaming systems also offer support. iPads (and anything else with a browser) too.

The service is impressive. All of a sudden you have access to thousands of movies and TV shows instantly. Unlike OnDemand services from cable companies, it's fast, well-organized, and has some really great content.

And it costs $8-$15. Cable companies are not happy. I probably have a dozen friends who have ditched the cable co. and gone all local stations, web, and Netflix.

Valuation

NFLX shares are somewhat pricey, trading at roughly 70 times trailing earnings (70x P/E ratio). Estimated forward P/E is around 41.

The company is growing fast, with quarterly revenue up 45% year-over-year. However, the PEG (price/earnings to growth) is still 2.0, indicating it is relatively expensive compared to how fast it's growing.

NFLX investors are betting on the company to dominate the streaming content industry. They're certainly in the lead today, and the market is still in its infancy.

No position in NFLX

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