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Netflix Counting on International Expansion

Posted on Friday, Jan 23rd 2015

According to recent market reports, the world will see 1 million minutes of video cross the Internet every second by 2018. Analysts estimate that video streaming will account for 80%-90% of global consumer traffic by 2019. TV and video streaming services provider Netflix is already gearing up to cater to this growth.

Netflix’s Financials

For the recently ended quarter, Netflix (Nasdaq: NFLX) saw fourth quarter revenues grow 26% over the year to $1.485 billion, marginally shy of the Street’s estimates of $1.49 billion for the quarter. EPS of $1.35 was significantly better than the market’s estimates of $0.45 for the quarter.

During the quarter, they added 4.33 million streaming subscribers overall. The additions included 1.9 million domestic subscribers and 2.43 million international subscribers. The market was looking for an addition of 1.85 million domestic subscribers. Domestic user addition continued to slow down due to high market penetration. For the same period last year, Netflix had seen an addition of 2.33 million domestic subscribers.

Netflix ended the year with revenues growing 26% to $5.5 billion. EPS increased significantly from $1.85 a year ago to $4.32 for the recently ended fiscal. At the end of the year, Netflix had a total of 57.39 million subscribers including 54.48 million paying members. Domestic subscribers accounted for 37.7 million paid members and international markets brought in the remaining 16.78 million paid members.

For the current quarter, Netflix forecast earnings of $0.60 on total streaming revenues of $1.40 billion. They are looking to add 1.8 million domestic subscribers and 2.25 million international subscribers in the quarter to end with 61.44 million total subscribers.

Netflix’s Market Expansion

Netflix realizes the need for international expansion to keep their growth momentum going. They plan to raise $1 billion through debt financing for this international expansion. Netflix is focusing on reaching all 200 countries with broadband Internet by the year 2016. As of now, Netflix is available in 50 such countries. They recently launched operations in France, Germany, and Austria and are now looking at the markets of Australia and New Zealand for the current quarter. While initial expansion will be costly, Netflix is positive that the increased scale of operations will finally lead to higher margins. They expect their international business to become profitable by the year 2017.

On the domestic front, Netflix is exploring options of offering their service in hotels. The Marriott Hotels group is testing a feature that will let guests at eight of their properties access Netflix through their television sets. Through the move, Marriott would be able to offer enhanced entertainment and on-demand options to their clients and Netflix would be able to expand their reach to existing customers and attract new ones. One of the options being considered by the hotel is to offer a premium Internet package that will include Netflix.

Netflix’s Original Content

Additionally, Netflix remains focused on generating original content to manage their costs and viewership better. They recently announced plans for additional original content including the third season of the critically acclaimed House of Cards. The series will be released by the end of February. They will also debut a second season of their big-budget series, Marco Polo by the year 2016. Besides series, they are also planning movies and have already signed up to release a sequel to Weinstein Co.’s Crouching Tiger, Hidden Dragon this summer. They have also tied up with Adam Sandler for four new movies.

Netflix’s stock is trading at $428.44 with a market capitalization of $25.54 billion. It touched a 52-week high of $489.29 in September 2014.

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