After expanding to Canada, Latin America, UK and Ireland,
) recently announced its plans to expand the online streaming
business to four Nordic countries of Norway, Denmark, Sweden and
Finland by the end of 2012.
This would be Netflix's fourth expansionary initiative after the
company debuted in UK and Ireland earlier this year. We believe
that the global expansion is a key revenue booster for Netflix as
the company has been witnessing a slowdown in its domestic
According to a data collected by a Nordic statistical research
group Nordstat, Nordic countries have a fixed broadband household
penetration of 80% to 92%, higher than European Union's average of
67%. Additionally, these countries also have a high level of mobile
broadband penetration. We believe that these factors presents
significant growth opportunity for Netflix's streaming services
going forward. .
However, stiff competition from
) Lovefilm, and other online players such as Acetrax, a division of
) BSkyB is the primary concern. Nevertheless, we believe that
Netflix's varied content library will provide a significant
competitive edge over its peers in the region.
Although international expansions are the key to Netflix's
growth story, increasing investments are expected to hurt
profitability in the near term.
However, it is noteworthy that in the recently concluded second
quarter, Netflix's international subscriber base soared 273.2% on a
year-over-year basis and now represents about 13.0% of its total
streaming subscriber base.
During the second quarter of 2012, international revenue
increased 242.1% on a year-over-year basis and 51.2% sequentially.
This reflects strong overseas demand for Netflix's services. We
believe that Netflix's focus on global expansion will drive
top-line and profitability over the long term.
Netflix remains a force to be reckoned with in the streaming
market. We believe that Netflix's improving content portfolio and
international expansion are noteworthy.
Despite higher license renewing costs, we expect 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 expenditure and increasing competition
compel us to remain Neutral on the stock over the long term (6-12
Currently, Netflix has a Zacks #3 Rank, which implies a Hold
rating over the short term.
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