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Netflix Swot Analysis

Essay by   •  April 12, 2011  •  Study Guide  •  440 Words (2 Pages)  •  2,665 Views

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Strengths

Strong market presence

Netflix is one of the world's largest online movie rental services, offering more than 8 million

subscribers access to 100,000 DVD titles. Netflix operates more than 50 distribution centers located

throughout the US. On an average day, it ships two million DVDs. In addition, it has no due dates,

late fees and shipping fees. As a result, the number of its subscribers increased from 1.5 million in

2003 to 8.4 million subscribers in FY2007. Furthermore, Netflix was rated number one in American

e-commerce customer satisfaction surveys which were conducted independently by Nielsen Online

and ForeSee Results in 2007. Therefore, such strong market position gives Netflix a competitive

advantage.

Robust growth in revenues and operating profits

Netflix has recorded robust growth since the launch of subscription service in 1999. During 2004-07

its revenues increased at a CAGR of 34%. In 2007, Netflix continued its rapid growth, with revenues

up 20.9% to $1,205 million from 2006. The operating profit of the company was $91.2 million in

2007, an increase of 41.5% over 2006. The operating margins also increased from 6.5% in 2006 to

7.6% in 2007. Strong revenue growth indicates strong market penetration capabilities while improving

operating margins indicate a healthy cost structure.

Strong inventory of DVDs

Netflix currently has stock of approximately 90,000 titles and more than 69 million DVDs which are

separated into 21 different genres including new releases, indies and television. In addition, the

company allocated substantial resources to develop, maintain and test the proprietary technology

that helps the company in managing the individual customer orders. Netflix distribute and also receive

DVDs from a nationwide network of shipping centers located throughout the US. Strong inventory

help Netflix to capitalize on the customer traffic and on the spending behavior of customers.

Weaknesses

Decrease of rentals per average paying subscriber

Netflix

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