Investing in Netflix

One of the stocks I currently own is Netflix (NFLX). I bought into Netflix at just over $25/share and it is now up a little over 30%. This was definitely the best investment I made since the market started tumbling at the end of last year. I wouldn’t necessarily recommend that you purchase into the stock on a short term basis but I still thing it is a strong long term investment. I wouldn’t be surprised if the stock pulled back another 10% to 15% in the short term, it has moved up pretty quickly since the end of January.

Long term I believe Netflix is in a good position. They have done a great job competing with Blockbuster and it will be interesting to see how they fare against Apple in the next few years. I do believe that movies will eventually go completely digital and we will no longer own physical mediums such as DVDs in the future. I just think that the future likely won’t be until about 5 to 10 years from now. We are quickly increasing bandwidth throughout the U.S. and there may be a small percentage of internet users that will be able to handle video downloads and rentals conveniently but it won’t reach critical mass for quite some time. I also believe that Blue-Ray will be a hot commodity once everyone owns a player because right now consumers aren’t really getting the most out of their HD TVs and even HD cable isn’t at the level of Blue-Ray. The 1080P content is also much larger than normal DVD or even TV HD content and the need for more bandwidth will be even greater.

In the end, Netflix is well positioned to capitalize on the slowness of consumer adaptation. They are getting positioned into video downloads currently but as Apple has seen with their Apple TV struggles, movie downloading just isn’t quite ready for mass market. Netflix will be a great 3 to 5 year investment and we will just have to see how they and their competition adapt to the market as the demand for downloadable content changes.