In a bid to strengthen its presence in Latin America and more
particularly in Brazil,
) has entered into a multi-year licensing agreement with Twentieth
Century Fox. Though the terms of the deal were not disclosed,
Netflix subscribers in the region would be able to stream TV shows
and films produced by Twentieth Century Fox starting this year in
Netflix had expanded in Latin American in September 2011 with
its streaming services. After roping in production powerhouse
Twentieth Century Fox, Netflix has now added an array of films and
TV shows to its portfolio, which it will offer to its Latin
This agreement allows the streaming of TV shows including "24,"
"Prison Break," "The X-Files," "Arrested Development," "How I Met
Your Mother," "Glee" and "Bones." Moreover, movies such as
"Gentlemen Prefer Blondes," "Wall Street" and "Office Space" will
also be available for streaming from June 2012.
In the recently concluded quarter, Netflix identified Latin
America as a nascent market for the video-on-demand segment. The
company admits that it is facing challenges due to the lower
income, limited broadband availability and limited use of credit
cards in the region. However, among these, the latter is the
biggest concern for Netflix, as the payment mode for subscriptions
is credit cards.
Amid these near-term negatives, Netflix can take solace from the
fact that Internet users in Latin America are projected to more
than double to 107.3 million in 2020 from 46.2 million in 2011,
according to SNL Kagan, a media consultant.
Separately, PricewaterhouseCoopers LLC estimates the market for
TV and video subscriptions to grow to $23 billion by 2015. Thus, in
the long term, growth prospects in the Latin American region are
immense, if Netflix can concentrate on brand-building through the
addition of new programs to its streaming portfolio.
We believe that the new content will not only improve Netflix's
competitive edge in international markets, but will also boost
subscriber growth going forward. In the recently concluded
quarter, the international subscriber base of Netflix added 1.21
million net subscribers on a sequential basis. Revenues from
international operations increased 48.3% sequentially.
Additionally, Netflix's future growth and strategy is entirely
based on the online streaming business, as its DVD rental business
continues to witness subscriber losses. Netflix faces significant
competition from Telefonica SA's TerraTV and Net Servicos de
Comunicacao SA in the Latin American market and from
), HBO and
) in the domestic market, which will remain a headwind going
forward. Moreover, higher capital expenditure arising from
international expansion will impact profits.
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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