Netflix, Inc. (NFLX) is Twice as Profitable Overseas as in its Home Territory


Netflix, Inc. (NASDAQ:NFLX)‘s revenue growth is mostly because of its overseas performance as per the Needham & Co. Analyst, Laura Martin. Shares of the company jumped by more than 17% after it announced earnings that surpassed earlier estimates. The company added more subscribers than analysts had expected.

Laura Martin estimates that Netflix has a payback period offshore twice as profitable as in the US. Netflix is poised to go from 50 nations to 200 nations’ penetration in the next 18 months. This is probably the reason the stock price is going up.

Netflix is aggressively targeting new markets and has the objective to reach 200 countries by 2016. Chief executive, Reed Hastings opined that the company’s planned entry into China might be stalled beyond the company’s goal of 2016.

Mr. Hastings was queried whether Netflix would miss its target to enter all of its new markets by the end of 2016. He replied that maybe the China deadline would be missed. However, he was very confident of meeting the deadline for the rest of the world. According to him the main hurdle was to obtain the required government clearance and partnerships to operate in China, a nation with strict media regulation.

Netflix attracted 2.5 million subscribers overseas and almost a million in the United States giving it a total of 65 million accounts.

Mr. Hastings said that the Netflix was experimenting with a host of different options for operating in China. He added that until the wide range of government permissions is obtained, he cannot be sure of anything.

Netflix is venturing into the Japanese market that Hastings described as “very brand sensitive” and would be ranked as one of the slowest markets to penetrate.

In the fourth quarter, Netflix will venture into Spain, Portugal, and Italy. Currently, no other new markets are planned for 2015.

The company’s international business is responsible for most of its recent growth. Since the start of 2014, International subscriber growth has surpassed growth in the US every quarter. This quarter it got nearly three times as many subscribers overseas (2.4 million) as in the US(0.9 million). Netflix looks to add 3.55 million subscriptions next quarter.

Sources: businessinsider, cnbc