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Netflix Continues to Add Markets and Content as Competition Increases

Posted on Thursday, Jul 31st 2014

While Netflix (Nasdaq: NFLX) did account for 57.5% of all online video traffic in a recent survey, its competition is heating up. Over the past few quarters, Netflix has gained popularity due to the vast collection of both licensed and original content programming. But now, giants like Amazon are eating into its space. Not only is the retail giant investing in original programming, but it is also entering into agreements with media moguls like HBO that will make Amazon Prime Instant Video the exclusive online-only subscription channel for HBO scripted shows. Netflix had recently flaunted a Morgan Stanley survey in which 17% respondents viewed Netflix as the service that offered the best original programming, second only to HBO. However, Netflix seems unfazed as it continues to deliver in newer markets and add to their content library.

Netflix’s Financials
For the recently ended quarter, Netflix saw second quarter revenues grow 25% over the year to $1.34 billion, marginally ahead of the Street’s estimate of $1.334 billion. EPS of $1.15 grew 134% over the year, but fell shy of the market’s projected earnings of $1.16 for the quarter.

International revenues grew 85% over the year to $307 million. Domestic revenues for the quarter grew 25% to $838 million.

They ended the quarter with 50.05 million streaming subscribers, adding 1.69 million members during the quarter despite the $1 price hike initiated during the quarter for all new subscribers. Domestic subscribers grew 570,000 over the year to 36.2 million. They added 1.1 million subscribers in the 40 other countries that they operate in. The growth in the subscribers was attributed to the stellar success of their proprietary content. For the 66th Emmy Awards, Netflix’s original series had received 31 nominations – more than Showtime, Comedy Central, and Fox.

For the current quarter, Netflix projected streaming revenues of $1.22 billion with an EPS of $0.89 versus the Street’s forecast of an EPS of 1.06.

Netflix’s International Expansion
Netflix continues to remain aggressive on international expansion and will begin their streaming services in six new countries by September this year. The countries slated for the roll out are Germany, Austria, Switzerland, France, Belgium, and Luxembourg. Analysts estimate that these countries include 60 million households with broadband connections that Netflix will be targeting.

But the international expansion is still running into losses. During the recently ended quarter, Netflix was able to improve their domestic contribution margin by 50.2%, but the growth was offset by the 5% contribution loss reported by the international segment.

Netflix’s Content Growth
Meanwhile, Netflix continues to invest heavily in content acquisition and development and is looking at a spend of nearly $3 billion during the year. Driven by the response to their original programming, they have already lined up production of new programs including Marco Polo, which is being shot in Kazakhstan and Malaysia; Daredevil, which is the first of the four original series from Marvel Television; sequels to the widely successful Orange is the New Black, and House of Cards along with other series such as Sense 8, Grace and Frankie, and Narcos.

Additional content includes the exclusive US video streaming rights for CBS drama series Zoo, which is expected to release later next year. They also entered into an agreement with comedian and actress Chelsea Handler to stream her new talk show.

Netflix’s stock is trading at $424.48 with a market capitalization of $25.5 billion. It touched a high of $475.87 earlier this month.

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