3 Reasons Why I'm Considering Netflix for My Portfolio

Recently, I wrote about five stocks which I feel have plenty of room to grow in the near future. One of these companies will be added to my portfolio at the end of the month. With that in mind, I have decided to take a closer look at eachof thecompanies and identify three things about each one that I think make them worthy additions to my portfolio. Next up under the microscope is Netflix (NAS: NFLX) .

Content is king
I don't think I need to rehash the Netflix story. What is important to note, however, is that as a first mover in the content delivery arena, Netflix got out to a quick start in getting entertainment into the hands of the consumer. Its delivery of DVDs to homes with no late fees pushed Blockbuster to bankruptcy, and it was among the first to offer digital streaming of television and movies as well. But, as often happens when you become the best at what you do, competitors are now attempting to do the same thing and offer similar services.

For example, Coinstar's (NAS: CSTR) Redbox service offers DVD rentals from its numerous kiosks, and recently got in the streaming game after announcing a deal with Verizon earlier this year. Apple (NAS: AAPL) allows people to buy or rent videos through its iTunes store, and Amazon (NAS: AMZN) Prime members can get content similar to Netflix at a discount. Throw in the on-demand content that people can access through their cable providers and you have a veritable smorgasbord of options.

So what makes Netflix stand out above the rest? The company is dedicated to producing original content. It started with Lilyhammer, which debuted in February this year to generally favorable reviews and will return for a second season. The David Fincher-Kevin Spacey collaboration House of Cards will debut in late 2012 or early 2013. Most exciting of all, especially to the diehard fans of the series, is the return of Arrested Development, which will find its way back on the small screen sometime next year. If Netflix can make these shows successful, even more content producers may see Netflix as a viable form of distribution for their content, eliminating middlemen along the way.

International opportunities
After taking the United States by storm, Netflix has begun to focus more on its expansion into foreign markets. Canada and Latin America were the first steps in a multiyear plan to develop its presence overseas. The recent announcement of an expansion into Scandinavia was seen as the logical next step, especially in light of ill-advised foray into the United Kingdom and Ireland earlier this year. A move into Western Europe could also be in the cards, especially in light of the company's success with Spanish and Portuguese speakers in Latin America. For the short term (as in within the next three years), the goal may be reaching the nearly 400 million people in continental Europe. There may be some growing pains along the way in the form of lower earnings, but ultimately it may lead to great returns for investors in the company.

If all else fails, sell!
Netflix is great at what it does, which is getting video content to customers. In the end, this may not be enough for the company to survive in perpetuity. While I don't think an acquisition of Netflix will happen in the immediate future, there is still the possibility that another company looking to expand its business could swoop in and acquire Netflix. I think Amazon would be a great option, if it wasn't already busy building out its own distribution infrastructure and spending billions of dollars on that. Apple also seems like a possibility, with Cupertino potentially needing the content for its long-rumored Apple TV. And with the cash to burn, spending a few billion on Netflix would barely put a dent in the balance sheet of the largest company in the world.

However, I think one company makes a bit more sense: Facebook (NAS: FB) . To quote myself: "I envision hanging out digitally with friends and commenting Mystery Science Theater-style as we enjoy movies or television shows together" through a Facebook/Netflix portal. Facebook might want to wait for its existence as a public company to settle down a bit, but Netflix could be a potential revenue stream, and current Netflix shareholders would be rewarded in the consummation of that relationship.

Is this enough?
It's hard to look at Netflix and not remember the PR disaster that was 2011, but there still is some potential for the company. Netflix was the first to do what it did, and it was so successful initially that it eventually forced Blockbuster out of business. If they can do the same thing to streaming video, the sky is the limit. To keep an eye on Netflix to see if it wins the battle for a spot in my portfolio, click here to add it to My Watchlist.

To read another view on Netflix, feel free to grab a copy of our brand-new premium report on the stock. You'll receive regular updates and analysis on the stock for the next year. Just click here to get started.

The article 3 Reasons Why I'm Considering Netflix for My Portfolio originally appeared on Fool.com.

Fool contributor Robert Eberhard holds no position in any company mentioned. Follow him on Twitter, or click here to see his holdings and a short bio. The Motley Fool owns shares of Netflix, Apple, Facebook, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Apple, Netflix, Amazon.com, and Facebook. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.
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