Market Overview

USPS And Netflix: Not Delivering For You


Unbeknownst to many, the financially strapped U.S. Postal Service doesn't actually have an official creed or motto. But at the end of the day, the fine folks at the USPS are supposed to deliver mail Monday through Saturday (excluding holidays) regardless of weather conditions.

Among the wares delivered by the ladies and gentlemen are those ubiquitous red envelopes from another enterprise that has seen better days: Netflix (Nasdaq: NFLX). Netflix would appear to be an obvious loser in the Postal Service's plan to eliminate overnight delivery of first class mail and has been identified as such.

One analyst made the argument in piece that Netflix is primarily a streaming company and that the Postal Service's plans won't impact the already downtrodden company. Apparently, investors think otherwise. As of this writing, the Nasdaq is up for the day, but Netflix is down almost 3%, continuing a fall that can best be described as a death spiral.

Granted, the need for the Postal Service to cut costs (why not just drop Saturday delivery?) isn't the fault of Netflix. In fact, it could be argued that the very existence of a company like Netflix means USPS should be making more money.

However, USPS plans to shutter almost 500 processing centers as part of its plan to trim costs and that could mean slower delivery of Netflix envelopes, though that is just speculation at this point.

Looking at the costs of express mail compared to first class delivery, there's no way Netflix could afford to go that route and the company would likely be force to beg customers' to accept later delivery or scrap the DVD-by-mail service altogether.

Over the past five years, the volume of first-class mail has dropped 25% as electronic deliveries, mainly email and, more recently, online bill payments, have cut into postal service revenue. As a result, the service faces a $14-billion budget shortfall next year, according to the LA Times.

Rich pensions and health care benefits for postal service retirees are part of the problem and that has nothing to do with Netflix. However, if the USPS were a public company, chances are its chart would be just as ugly as Netflix's, if not worse.

Bull case: Netflix can convince all subscribers streaming is the way to go and get them off the by mail service altogether. That or the company gets bought.

Bear case: Even the USPS' problems aren't caused by Netflix, delays in getting DVDs could force already wary customers out the door.

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