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Inside The Numbers: Why Redbox is Crushing Netflix

Written by Alexander Tucker   // 06/16/2012

RedboxPaul R. La Monica of Yahoo Finance, wrote, ‘Shares of Netflix (NFLX) got off to a smoking start this year after a nightmarish 2011. But like the rest of the market (and especially momentum stocks), Netflix has come crashing back to Earth. The stock is now actually down almost 10% in 2012. Do investors think that the video market is dead? No.’

 

To me, the real reason for the Netflix decline is the emergence of Redbox. You know those big red soda looking dispenser in front of every supermarket and Wall Mart on the planet? RedBox has become Netflix’s biggest nightmare. Redbox is so much more convenient and people trust Redbox now. I remember the first time I saw one, I thought, I’m not putting my money in that machine, who knows what I will get out of it.

 

Well, that’s no longer an issue as Redbox has put in the work and gained consumer confidence. In fact, Redbox shares are up nearly 40% this year.

 

Michael Pachter, an analyst with Wedbush in LOA, said, “Redbox is more compeitive if you only watch a DVD a week. The vast majority of people watch fewer than 3 movies a month.” He added, ”There is a reason Wal-Mart exists. People like the value proposition. And that’s the same reason why Redbox exists.”

 

Redbox

Cionstar Inc is Redbox in light green, Netflix inc. is in blue

 

“Netflix has a lack of visibility regarding international expansion. When will the losses narrow and margins improve?” said Steve Frankel, analyst with Dougherty & Company in Boston. “Netflix may also double down on more new markets.” Netflix is going to have to. 7-11 has just signed a huge deal with RedBox and we all know how many 7-11′s there are out there. In LA they’re like McDonalds. There’s one on every corner and they will all have giant RedBox’s housing BluRay’s and DVD’s.

 

Which do you prefer? RedBox or Nexflix? Or are you like me, I still enjoy buying BluRay’s and DVD’s.


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