Netflix, Inc. (NASDAQ:NFLX) has got the run of the video streaming market right now. The company has been doing phenomenally well in 2013, and appears to be getting over some of the issues that dogged its early years. The company’s success in the market means one thing and one thing only however, competition is coming.
Competition already exists in the video streaming market. Amazon.com Inc. (NASDAQ:AMZN) has its own moderately successful streaming service and Hulu, which announced it would not sell itself some days ago, has some unique advantages over Netflix, Inc. (NASDAQ:NFLX).
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Netflix spiraling out of control
Netflix has a really successful business model, and the company’s attempts to move into original programming this year have been met with general praise. The company will announce Q2 earnings on July 24. So far in 2013 the company’s earnings reports have impressed, and it’s share price has rocketed upward.
Since the start of the year, Netflix, Inc. (NASDAQ:NFLX) has nearly tripled in value. The company now trades at a P/E of more than 600. With increased competition definitely on the way, is it too risky for investors to hold at such a high valuation?
Competition may not be a factor for years
Netflix has around 27 million subscribers in the United States according to the company’s January earnings report. Nobody is quite sure what the total market for streaming is, with factors like account sharing and internet reach representing problems. It may however, be big enough that competition, as in the smart phone market through 2012, will lead to expansion rather than losses for Netflix, Inc. (NASDAQ:NFLX).
This is what the company’s shareholders must be hoping. In a recent report, Citigroup Inc. (NYSE:C) analysts suggested that the streaming service’s competition would really increase in the coming year, but expected the company to be able to hold on for the most part.
The report put a price target of $235 on the company’s stock. That number suggests the analysts expect Netflix to lose steam as other companies enter the market. Content pricing is likely to become more competitive, and subscriptions are likely to be driven down.
Competition will hit Netflix, Inc. (NASDQ:NFLX). Unlike the smart phone market, expansionist competition requires too many variables that simply don’t add up. The company is strong, and it should be able to hold on according to this report, but times are still going to be tough.