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Netflix’s Content Keeps it Ahead in the Video Race

Posted on Friday, Jan 20th 2017

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Video streaming has caught on incredibly well. According to a MarketandMarkets report, the global video streaming market is expected to grow from $30.29 billion in 2016 to $70.05 billion by 2021, at a CAGR of 18.3% during the forecast period. Netflix (NASDAQ: NFLX), the pioneer in video streaming, is reaping the benefits of this trend. But the competition is also increasing.

Netflix’s Financials

In 2016, Netflix generated $8.3 billion in global streaming revenue, which is up 35% over the year. It ended the year with 93.8 million members, or net additions of 19 million. Net income was $187 million compared to $123 million a year ago. It ended the year with current assets of $5.7 billion and total assets of $13.6 billion.

Its Q4 revenues grew 41% over the year to $2.48 billion, marginally ahead of the Street’s forecast of $2.47 billion. Net income grew 56% over the year to $67 million, compared to its forecast of $56 million.

During the quarter, Netflix added 7.05 million net subscribers, compared to 5.59 million a year ago. US subscribers grew by 1.93 million, ahead of the company’s forecast of 1.45 million, to a total of 49.43 million subscribers. International subscribers now account for over 47% of its subscribers, growing by 5.12 million, ahead of its forecast of 3.75 million, to a total of 44.37 million subscribers. Analysts had forecast 3.73 million non-US additions and 1.44 million at home.

For the first quarter, Netflix forecast an addition of 5.2 million subscribers, with 1.5 million in the US and 3.7 million internationally. Market expects net additions of 1.79 million in the US and 3.05 million internationally.

Netflix’s Content Growth

Netflix plans to invest more than $6 billion in content in 2017 and release more than 1,000 hours of original programming this year, up from 600 hours in 2016. Its global originals Marvel’s Luke Cage,The Crown, and season 3 of Black Mirror have become successful all over the world. The Crown also received the Golden Globe Award for the Best TV Series (Drama) early this month. Guillermo Del Toro’s Trollhunters, launched in December, is tracking to be its most-watched kids original.

Its first Brazilian original series 3%, a sci-fi, post-apocalyptic thriller, premiered as one of the most watched originals in Brazil and played well throughout Latin America. Moreover, after the show was dubbed and subtitled into English, millions of US members have watched it. At the end of the quarter, it released the supernatural drama The OA.

In Q4, Netflx launched offline viewing, which allows members to download content to iOS and Android devices. This move is targeted at members in emerging markets, where the broadband infrastructure is less robust. It also launched on Comcast’s X1 set-top boxes, allowing members to use their X1 remote control and user interface to access Netflix.

Netflix’s Competition

Competition in Internet video is heating up. Amazon Prime Video has recently expanded to match Netflix’s global footprint, while YouTube continues to lead in terms of global video enjoyment minutes. Video is also becoming a strong channel for Facebook. Apple is also rumored to be getting into the video race.

I recently suggested that Apple should buy Netflix. Netflix has developed good expertise in developing original content that is generating hit after hit. If Apple buys Netflix and really develops this angle, and integrates Netflix with a superior user interface on Apple TV, this combination would inject energy into both hardware sales and content-driven subscriptions. While this would be a large, uncharacteristic acquisition for Apple, it would be an exciting one for sure.

And as the market saturates and competition increases for Netflix, it will need access to more resources, which Apple has. Apple ended the year with $20.5 billion in cash and equivalents while it has assets worth $321.7 billion.

Satellite TV operators and TV networks are also investing more in streaming. While this does offer more opportunities, the increasing competition means a whole new set of challenges.

Netflix’s stock is trading at $138.41 with a market capitalization of $59.56 billion. Its shares jumped to a new 52-week high of $143.46 after its result announcement.

Photo Credit: Alan Levine/Flickr.com 

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