Many Netflix, Inc. (NASDAQ:NFLX) investors believe that the Reed Hastings-led company will be the only player in the Internet video streaming market over the next 3-5 years. But recent reports suggest that Apple Inc. (NASDAQ:AAPL) is in early talks with Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) to offer video streaming through its set-top box to enhance the TV viewing experience. On the other hand, Amazon.com, Inc. (NASDAQ:AMZN) is also reportedly planning to launch an ad-supported (and ad-free for Prime members) subscriber video on-demand service.
None of potential Netflix rivals have played their last card yet
Bernstein Research analysts Carlos Kirjner and Peter Peskhaver note that the discussions between Apple Inc. (NASDAQ:AAPL) and Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) are no surprise, given their size and importance. But a partnership between the two will face a lot of hurdles. There will be fragmentation issues for device manufacturers. Both parties will have to agree on customer ownership, branding, feature functionality, value sharing, sale, distribution and install processes, among others. These complexities could make the Apple-Comcast deal unworkable.
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There are still uncertainties whether the offers these giants plan to bring will be successful. But the research firm says that it’s wrong to turn bearish on Netflix, Inc. (NASDAQ:NFLX) just because of stories about Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) entering the market. However, these stories do underline that neither video distributors like Comcast Corporation (NASDAQ:CMCSA) (NASDAQ:CMCSK) nor companies like Apple, Amazon and Google Inc (NASDAQ:GOOG) have played their last card in the video on-demand space.
Netflix will find it hard to reach 50 million domestic user base
Netflix, Inc. (NASDAQ:NFLX) is not the only player in this business in most of the European markets. And investors who think it will be the only game in the town in the United States are overly optimistic. When players like Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) use their immense resources to create substitutes or competitors to Netflix, two things are likely to happen. One, the number of Netflix’s steady subscribers will shrink as a segment of its user base may prefer to access content through other means. Two, the size of market base satisfied by alternatives will rise. That’s because Netflix is likely to increase prices either by raising the fee it charges or by reducing the amount of content available at the current price.
In this scenario, Netflix, Inc. (NASDAQ:NFLX) will find it harder to exceed 50 million domestic users. Bernstein has an Underperform rating on the stock with $260 price target.
Netflix, Inc. (NASDAQ:NFLX) shares fell 0.33% to $357.78 at 10:38 AM EDT on Monday.