Streaming services provider,
Netflix Inc. (
NFLX
)
recently announced the availability of its "Just for Kids" category
on
Microsoft's (
MSFT
)
Xbox 360 console entertainment system. "Just for Kids" is now
available on all major consoles, including
Sony's (
SNE
) PlayStation 3
and Nintendo's Wii.
Netflix's "Just for Kids", is targeted at children aged 12 and
below. The category, which includes shows such as "Bob The
Builder," "Thomas the Tank Engine," "Backyardigans," "Caillou,"
"Curious George," "Power Rangers" and "Arthur", has become quite
popular with subscribers.
This is evident from the fact that since its release in August
2011, "Just for Kids" has accounted for more than 2 billion hours
of viewing. The surge in viewership has been primarily driven by
Netflix's engaging content, in our view.
We believe that the addition of Xbox 360 to the list of devices
for streaming TV shows and films from the "Just for Kids" category
will drive Netflix's popularity going forward. Xbox 360 continues
to lead the domestic console entertainment market, which will help
Netflix to reach out to a larger section of its targeted
audience.
Beside the popular gaming consoles, "Just for Kids" is also
available on personal computers, including
Apple's (
AAPL
)
Macintosh and Apple TV. Netflix expects to add other devices such
as tablets to the list of devices for streaming content from the
"Just for Kids" category in the near future.
Netflix's library contains a wide variety of documentaries and
movies that target every section of the audience. Through its
original television shows, Netflix has been venturing into
different genres like comedy, political thriller, autobiography as
well as horror. 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.
As a result, in the recently concluded second quarter of 2012,
total number of subscribers (Domestic and International) jumped 18%
year over year to 30.1 million. We believe that the variety in
content will help the company to drive customer engagement going
forward.
Furthermore, 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
)
.
Our Take
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 expenditure due to international
expansion will hurt earnings growth in the near term, in our view.
When compared to some of its cable and communications peers that
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 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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