Is Netflix a Screaming Buy?NFLX) ticked up approximately 34% from their lowest point of $82.79 a share on February 5, to the current level of $111.51 per share. However, its shares are still down about 3% since year-to-date. This drop, in my opinion, creates an opportunity that the investors should not overlook. Let us find out why.
Growth in subscribers
For internet television giants like Netflix and Amazon (AMZN), the growth in subscribers remains a key dynamic, and luckily Netflix is doing great on this metric.
More importantly, this growth in net new customers is coming across the world that makes it even more attractive going forward. For instance, after having launched Netflix in Japan, Portugal and Italy in the final quarter of 2015, the company now plans to move into around 130 additional countries. With this move, the company broadens its total addressable market by 190 million broadband homes, on top of the 360 million it estimated at the year's end. Thus, the expansion to new countries means getting new customers to its network, which should enhance its subscriber base eventually.
Another essential thing to notice here is that the company is able to grow paid memberships for domestic as well as international streaming, along with growth in total memberships that should keep its top line performance intact going forward. For example, its paid membership for domestic streaming came in at 43,401 thousand in the last quarter, representing an increase of 3.61% sequentially and 15% year-over-year. In fact, these numbers change considerably when it comes to international streaming that recorded approximately 15% sequential growth in the paid memberships and about 64% year-over-year basis.
The most important part is that Netflix was able to achieve this robust growth in paid memberships, despite increasing its average subscriber price by 4.5% internationally and by 4.3% domestically. This helped the company to report year-over-year growth of 21% in domestic and 46% in international streaming revenues respectively. This is an impressive step, as this will enable the company to keep its revenue up going forward, rather than providing discounts to get new customers for its service. This step should certainly ease out some pressure on the bottom line going forward.
Enhancing content to further drive growth for its business
Netflix, in order to tap the growing internet television market, is aggressively updating content and bringing in new series, while maintaining a reputation for high-quality content. For instance, the company, during the final quarter of the year, unveiled new popular series such as Aziz Ansari’s “Master of None,” Marvel's “Jessica Jones” and the much-talked-about show “Making a Murderer.”
Looking ahead, the company plans to launch over 600 hours of original programming, which is appreciably up from 450 hours in 2015. In fact, Netflix has additionally expanded the breadth of its original programming for the new season with 30 plus original series. This includes The Crown and The Get Down, 8 original feature films, a dozen documentaries, 35 new seasons of the original series for kids and 9 standup comedy specials.
This is a fantastic move, as updating the content with new series and films for all categories will help the company aggressively bring new users into its platform and improve market share in the U.S. At the same time, this will help the company to get into new geographies with more enhanced content, driving growth for its subscribers eventually.
Government initiatives to accelerate growth for internet TVs
U.S President Barack Obama has recently supported the Federal Communications Commission or FCC’s plan to open up phones to competition. As per this initiative, the U.S. government is all set to accelerate the “unlock the box” plan that includes the digital dialing, built-in answering machines, panoply of styles, cordless phones, and other innovations. This plan will assist consumers in easily accessing their content without having to go through a separate device to do so. Thus, this move should help internet TV providers, such as Netflix and Amazon to create new, innovative, higher-quality, lower-cost products going forward.
Netflix, on a constant basis, is growing its subscriber base, which is why the company was able to improve its revenue by a whopping 28% year-over-year in the final quarter of 2015. In fact, the company expects a significant uptick in its subscriber base in the ongoing quarter and therefore forecasts revenues to come in at $1.8 billion for the first-quarter of 2016, representing an increase of 30% year-over-year. At the same time, Netflix expects its contribution margin to significantly improve to 16.7% in the first-quarter of 2016 as against a contribution margin of 13.6% in the same quarter last year. Netflix remains an attractive opportunity to invest in the short as well as long-run.
Published on Apr 20, 2016By Subhen Mittra