Netflix, Inc.: The Customer Strikes Back

Abstract

This case is an updated version of "Netflix Inc.: DVD Wars" (UVA-M-0763), and was written as a replacement for it.A financial analyst is asked to appraise the value of Netflix's stock at a time of unprecedented turmoil for the company. This case introduces customer lifetime value (CLV) as a useful metric for subscription-based businesses.

Excerpt

UVA-M-0834

Rev. Dec. 7, 2015

Netflix, Inc.: The Customer Strikes Back

Three years after earning his MBA, Hunter Keay was starting to make a name for himself at a leading investment bank when, in February 2012, some of his clients grew increasingly anxious about the value of their holdings in Netflix, Inc., the subscription-based media-distribution company. Six months earlier, Netflix had announced a plan to split its on-demand video streaming and DVD mail delivery into two businesses (Qwikster for DVD rental by mail and Netflix for video streaming) and to increase the price of its most popular service. But in the face of near-universal criticism, Netflix had abandoned the plan within a month, only to lose 800,000 subscribers and half its stock value (Figure 1). Keay's clients who held Netflix stock wanted to know what remained of their investment.

Figure 1. Netflix stock price and volume, March 2002 to February 2012.

Data source: Yahoo! Finance.

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Keywords: perceptual market map, customer retention, customer lifetime value, CLV