According to a Bloomberg article , Netflix ( NFLX ) might be looking to expand into Latin America after its Canadian expansion. Below we present our quick take on this. Although Netflix's business model is unique, it still competes with Apple's ( AAPL ) iTunes, Hulu, video on demand (VoD) services from pay-TV providers like Comcast ( CMCSA ), Time Warner Cable ( TWC ) and Google ( GOOG ) which has announced plans to launch a paid streaming service via Youtube.
Our price estimate for Netflix stands at $153 , which is around 35% below the market price.
Hope Lies in Growth
On the surface, Latin America might not seem like a great market given its low broadband and pay-TV penetrations currently. The pay-TV penetration of total Latin American households was estimated to be around 28% in 2010. Moreover the region only accounted for 8% of the global online population in Apr 2010.
In a region where most people don't even have pay-TV subscription, does Netflix's service make sense? If we take example of the U.S., it was pay-TV that expanded first followed by Internet video surge.
However, Netflix and others hope that Latin America's high growth prospects will provide the ultimate reward. According to analysts at research firm Analysys Mason, the region will have one of the fastest growth rates in broadband subscribers. As the broadband wave starts to take off in Latin America, it's in Netflix's interest to win the hearts of consumers early. DirecTV's success in Latin America draws similar parallels. The pay-TV penetration still remains low, but is rapidly increasing and DirecTV is reaping the benefits of this growth.