One simple way to gauge a subscriber-based company’s value (be it a telephone company, internet service provider, satellite radio provider, or video/game rental company) is to look at the market value of the company’s stock (its market cap) as a function of the number of subscribers the company has. In order to really get an understanding of how much GZFX is worth (disclaimer: I’m long 500k shares), and more importantly to temper my own expectations, I decided to analyze GZFX and NFLX’s current / historical market caps as functions of their current / historical subscriber bases. Here’s what I found:
The market tends to value NFLX at approximately $400 per subscriber. The market has tended to value GZFX higher than this, and currently values GZFX at approx $1000 per subscriber (based on an assumed 15,000 subscribers as estimated by a few people on this board and which IMO is a pretty reasonable end-of-2005 estimate).
Now before anybody gets excited thinking we’re overvalued because we’re at $1000 / sub vs NFLX at $400 / sub, keep in mind that GZFX, because it is in the beginning of its CC rollout, can be expected to grow exponentially faster, as a function of its current sub base, than NFLX, therefore justifying the higher per-sub valuation. So don’t worry about this.
But now let’s look forward and look at a more “mature” GZFX on a per-sub basis comparable to NFLX (i.e. $400 / sub). Assume that we have 500k subscribers by the end of 2006. I honestly have no idea whether we’ll have 200k subs or 2 million subs by that time, but I’m going with 500k, which I think is attainable based upon the following projection:
Assume the CC rollout begins in earnest in late January, and all 600 stores have GZFX by the end of 2006. This equates to an average of 300 CC stores throughout the year. It would take an average of 4.56 GZFX subscriptions sold per day per store to reach 500k by the end of the year. Obviously, there will be some lumpiness in these sales, with a slow summer and a heavy Thanksgiving / Christmas sales season (at which time all 600 stores will be online!). This doesn’t include the existing subs, nor does it include subs gained from CC’s website, CSTV, word-of-mouth, etc. So, in a nutshell, I think 500k is attainable by Dec 2006. (For comparison purposes NFLX has added 1 million subs / year for each of the past two years and 500k during 2003, so we can definitely do this, with CC’s help.)
OK, so now the answer we’ve all been waiting for: Based on NFLX’s valuation of $400 per sub, GZFX would be valued at $200,000,000 with 500k subscribers. This equates to 16.6 cents per share – a ten bagger by next December (assuming $1.205B shares O/S). In all likelihood, GZFX would command a higher per-sub valuation, too, because, as a smaller company it has greater growth potential, it has games, it expects to add audiobooks and other services, etc. But I won’t go into too many “what-ifs” right now.
For future reference, I’ll keep track of this metric and update/post it periodically as the companies update the investing community through SEC filings, PR’s, etc.
Market Data 
Markets 
AI
