ABC's popular shows
Revenge
,
Once Upon a Time
and
Scandal
are now available on
Netflix's
(
NFLX
) streaming service. Netflix recently added Season 1 of these shows
to its vast library, which already contains other ABC hits such as
Grey's Anatomy
,
Private Practice
,
Desperate Housewives
and
Lost
.
The exclusive availability of the season 1 episodes is expected
to create significant buzz around the upcoming season 2. ABC is
scheduled to broadcast the new episodes of the shows by the end of
September. Further, the addition of these ABC hits is expected to
expand Netflix's customer base going forward.
Netflix continues to expand its vast streaming library through
the addition of original series, third party productions, movies
and documentaries. Lately, Netflix has made a name for itself by
offering new and exclusive content to its subscribers compared to
the traditional content provided by some of its closest peers.
Netflix continues to offer new content through partnerships with
leading Hollywood studios and entertainment companies such as
Metro-Goldwyn-Mayer, Twentieth Century Fox, Hasbro Studios, The
Weinstein Company (TWC), Warner Bros. Domestic Television
Distribution, and Epix to name a few.
Through its original television shows, Netflix has been
venturing into different genres like comedy, political thrillers,
autobiographies as well as horror. Netflix is expected to stream
five original series by 2013 end.
We believe that the improved content makes its streaming
services distinguishable from other service providers such as HBO,
Amazon.com Inc.
(
AMZN
), Hulu as well as the newly-launched services from cable and media
companies such as
Comcast Corp.
(
CMCSA
),
Dish Network Corp.
(
DISH
) and
Verizon Communications
(
VZ
).
The improved content has also driven customer engagement lately.
In the recently concluded second quarter of 2012, the total number
of subscribers (Domestic and International) jumped 18% year over
year to 30.1 million.
We believe that Netflix's improving content portfolio and
international expansion are noteworthy. Despite higher license
renewal costs, we think Netflix will probably see sales
strengthening, as subscribers take note of the improving portfolio.
This would ultimately enable the company to strengthen its position
over the long term.
However, higher capital expenditures due to international
expansion will hurt earnings growth in the near term, in our view.
Moreover, when compared to some of its cable and communications
peers who have diversified revenue and cash flow streams, Netflix
relies solely on streaming for future growth, as its DVD rental
business continues to lose subscribers.
We believe that the streaming market is becoming overcrowded and
this will hurt Netflix's margins going forward. We provide a word
of caution to investors in this respect.
We have a Neutral recommendation on Netflix over the long term.
Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating
over the short term.
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