- Netflix stock price is highly contingent on subscriber growth.
- Recent analysis, and news indicates that the company may be doing better.
- Going forward, the CEO of Netflix anticipates that Netflix among many others will replace broadcast television.
- The data certainly confirms the mix-shift to SVOD, and other streaming services.
Netflix (NFLX) reported pretty dismal results last quarter, which sent the stock sailing south. It has become increasingly obvious that Netflix needs to produce significantly better results from the prior quarter, for investors to take the investment opportunity seriously.
The biggest theme for Netflix is international subscriber growth, and on this front it seems there has been some good news.
According to The Hollywood Reporter:
Analyst Simon Murray says that since September, when Netflix launched across six new European countries, the VOD giant has added nearly 3 million new subscribers to its previous international tally of 14.4 million. Murray said subscriber figures for Netflix in Latin America were higher than was previously forecast, while numbers in the U.K. were substantially lower.
The analyst expects Netflix to exceed subscriber forecasts by 500,000. This would be a reasonable beat over estimates for a company that missed its own subscriber forecast last quarter. Growth is likely to accelerate into FY 2015, as Netflix rolled out its service in Europe for much of 2014.
The market opportunity in Europe is significant due to higher disposable income and better bandwidth speeds. Not to mention, if Netflix were to convert households at a similar rate as it did in the United States, the growth rate in subscribers may actually accelerate as the total addressable market has increased exponentially over the past five years.
In an article I wrote earlier in the year, I stated that international subs could become a significant opportunity for Netflix:
Assuming Netflix is able to penetrate 40% of the 230 million international households the service is currently available in, the company's international subscriber figure will grow to 92 million, not inclusive of new markets. But let's assume the remaining 480 million households (markets that Netflix has yet to enter into) over a five-year expansion period have 10% penetration depending on launch window. The company would have 48 million in additional international subscribers. This totals 140 million international subscribers over the next five years.
At that kind of scale, Netflix can afford a much larger content collection, which will give the company a larger moat around its business. Furthermore, it would validate the opinion of the CEO who recently stated that Netflix will replace broadcast television over the next fifteen years.
Quoted from Beta Beat:
“It’s kind of like the horse, you know, the horse was good until we had the car,” Mr. Hastings said. “The age of broadcast TV will probably last until 2030.”
Admittedly, Netflix has lofty ambitions. But recent data points out that this trend is starting to pickup some momentum.