Is Netflix's Growth Story Over?

Netflix’s (NFLX) valuation has been a matter of debate for many years. The stock has appreciated considerably over the last few years despite the bear arguments about its valuation. Despite the recent volatility, the stock is up 154% YTD and I believe the company’s growth story is still intact and here’s why.

Robust presence in the market

Netflix is continuously moving upward, as it is delivering outstanding financial performance in its every quarter. The company produced robust results in Q3FY15 as EPS was up 18 cents per share versus the same quarter prior year, whereas revenue for the company surged 31% to $553.2 million from $423 million previous year.

Despite the outstanding performance, competitive strength has been always a vital factor for Netflix.
Rivals such as Amazon (AMZN), Time Warner (TWX), Apple (AAPL) are the main competitive threats, however the company has managed to grow despite the increasing competition.

Netflix finished its third quarter of this year with a total of 69 million clients all over the world, 26 million of them in international market, and the left over 42 million in the U.S. Growth will likely decelerate in the U.S, however international market should stay prevailing growth drivers for the company in the mid-term.

In spite of company’s robust presence in the international market, it still has room for expansion. The company recently entered Spain, Italy, and Portugal, and now management is strategizing to gamble into South Korea, Taiwan and Hong Kong in the beginning of 2016.

The company’s content is costly, but revenues are maturing costs, and supporting company to produce strong profit margins in U.S. Worldwide growth will put negative pressure on margins over the mid-term, but the company’s management predicts that international expansion will likely surge in 2017 and afar, instead of 2016.

Another plus point for the company is that once clients get hooked on Netflix, they generally subscribe its service for a long-term. The company puts many efforts to promote its own original series, which are swiftly mounting in number, to surge the prospect that clients will renew their subscription.

This strategy has worked well till now as the company has established a loyal user base and should continue to work as the company expands internationally.

Conclusion

Despite Netflix’s strong growth over the years, the company still has a lot of room to grow. The stock has continued its upward trajectory for years and I believe the company’s growth story is still intact. Netflix’s strategy has worked well till now and the company should continue gain traction in the international markets as well. All said, I think Netflix is still a good buy.
Published on Dec 7, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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