1. Would you buy Blockbuster stock or short it at the time of the case? How about Netflix? Why?
When evaluating a company is worth investing in or not, we take into the following elements into consideration.
a) The current market share.
b) The strategy a company formulates meets future trends.
In terms of a), Netflix is the market leader of on-line rentals; however, Blockbuster has just started its on-line service. That is to say, Netflix owns larger market share at that time. Under such circumstances, Netflix has already established trusts in consumers’ mind, which makes it more difficult for Blockbuster to bring in consumers. And the following evidence proves the steady and good performance of Netflix.
1) Its net income curve rises straightly from 2004 until now. (financial statement)
2) Its subscribers grow to 6,316 and distribute over 1.5 million discs a day.
In terms of b), having a “customer-oriented” thought when formulating future marketing plans plays an important role in the era of web2.0. From the following checklists of what Netflix did, it obviously shows that it’s far more customer-oriented than Blockbuster.
1) It provides various choices of videos, which might satisfy more customers.
2) It selects the popular online rental path, which intends to be the most convenient way for most persons.
3) Its pricing policy seems to provide more alternatives for customers.
4) Its distribution policy, like 5 separate rental queues, combines the interest of individual family members, and let parents control the web environment for their kids.
5) Its sharing community for videos viewing suggestions, very likely to the sharing feature on web 2.0.
6) The new policy of instant viewing of VOD would impact the large user base.
Because a) and b) both indicates that Netflix is worth investing, we wouldn’t buy Blockbuster’s stock. We believe Netflix’s customization policy is more qualified for the web 2.0 trend, which will arise more stock value in the future.
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