Goldman Issues Netflix (PT: $200) Update: Sees Facebook As A "Credible Threat"

Following the earlier news that Facebook is now entering the virtually no barriers to entry market of content streaming, Goldman has just released a note that will make even more of the longs very to quite very nervous.

From Goldman's Ingrid Chung, "Facebook could some day become a credible threat to Netflix"


Warner Bros. announced this morning that it will begin testing an offering of selected movies for purchase or rental through Warner Bros’ Facebook movie pages. Consumers can use Facebook Credits to buy or rent titles within the Facebook platform. Fans who “like” “The Dark Knight” can rent the title for 30 Facebook Credits or $3. Additional Warner Bros. titles will be available through this test over the coming months.


We believe that on a short term basis, this is not an immediate threat to Netflix as Facebook’s is currently only a pay-per-view platform which is more of a threat to other forms of VOD (such as iTunes or Amazon), lacks content, does not have wide distribution across devices that connect to the living room TV, has few people on the payments platform, and does not have an incumbent business that is under threat from increasing online video viewership.

However, on a longer-term basis, we think that Facebook could become a credible threat as its video business evolves for three reasons: (1) Facebook has more than 500 mn active users, 50% of which log on to Facebook in any given day, according to its website, which compares with Netflix’s 20 mn subscribers; (2) We believe that the “wisdom of friends” could be a bigger driver of movie viewership than the “wisdom of crowds”; and (3) We believe that many of the issues outlined above could be fixed over time, including the gap to the living room TV.


Facebook’s foray into pay-per-view does not impact our Netflix estimates. However, Facebook represents a new potential entrant that few in the investment community were concerned with prior to this announcement, so we believe it does indeed represent an incremental negative for Netflix shares. No change to our rating, estimates, or price target.


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