Netflix Inc. (NFLX) has released a new app for Android-based smartphones and tablets, expanding its range of apps for these devices. The new app supports Android 3.x-powered tablets, and allows the Canada and Latin American Netflix subscribers to stream videos on the Android devices instantly.
Netflix Sees Opportunity in Incremental Android Demand
Android-based smartphones and tablets from Google Inc. (GOOG) have been gaining popularity. Analyst firm Gartner Inc. expects Android to account for 49% of the smartphone market by 2012.
Another research firm, IDC, expects Android-run tablets to see growth from the fourth quarter of 2011. Therefore, Netflix’s new app for Android devices is significantly important to cash in on this opportunity. Hereafter, Netflix can attempt to cater to the growing band of subscribers who use tablets and smartphones for streaming purposes.
The Recent Headwinds
Netflix has been in dire straits since July, due to the Starz licensing debacle and then the price hike. Moreover, Netflix decided to split its business in two, but later decided to abandon the plan.
These decisions left investors and customers confused and flustered. As a result, share prices have dropped by more than 46% or $98.05 since September 15, eroding more than $5 billion of the company’s market cap.
Though Netflix’s management admitted that splitting up the business was a wrong decision, it stood by the decision to increase the subscription price by 60%. The price is expected to cost the company an estimated 1.0 million subscribers in the third quarter, which ends on September 30, 2011. However, in the present scenario where content additions are the prime factor to stay competitive, hiking the price is one of the ways of financing the licensing agreements.
We believe content additions will enable Netflix to reduce its dependence on cable TV operators and provide it with the necessary competitive edge over its peers in the emerging market of online video streaming. Moreover, strategic partnerships will also be beneficial, helping it to expand its geographical footprint.
However, intensifying competition from large players such as Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. in the online streaming market is a headwind, as it will further push up license fees and also affect subscriber additions.
We maintain our Neutral recommendation on Netflix over the long term (6-12 months). Currently, Netflix has a Zacks #4 Rank, which implies a Sell rating on a short-term basis.
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