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Netflix (NFLX) Banks on International Growth in Q2 Earnings

Zacks

Netflix NFLX has been banking on international subscribers to drive its top line as its domestic market nears saturation.

The company’s robust library of regional original content is expected to boost subscriber base in the second quarter of 2018, which is scheduled to be reported on Jul 16.

However, cut throat competition in the domestic market is an overhang on domestic subscriber addition. However, it is expected to be offset by growth in international quarters.

Click here to know how the company’s overall Q2 performance is expected to be.

Overseas Growth to Drive Away Domestic Woes

We note that Netflix’s aggressive expansion into the international markets has been beneficial, with the company generating 48% of revenues from this segment in the last reported quarter.

The streaming platform’s efforts to attract viewers through investments in regional programming have added significantly to its user base. International Streaming subscribers increased 42.6% year over year to 68.29 million and constituted 54.6% of its total subscriber base.

Netflix projects international revenues to exceed domestic revenues in the second quarter. International streaming revenues are expected to be $1.943 billion, $45 million more than domestic revenues in the soon-to-be-reported quarter.

The company is facing stiff competition in its domestic market. Apart from Amazon.com AMZN, some of its noteworthy competitors include HBO, Hulu, Facebook FB Watch, Apple AAPL Music and The Walt Disney. Most of the players are investing heavily to develop original content that has become a differentiator for attracting new subscribers.

Although Netflix’s premium expanding content can justify a higher-priced plan, the chances of losing competitive edge to its peers also increase. Moreover, the lower programming slate in the quarter compared with the year ago quarter is anticipated to hurt domestic subscriber addition.

For the second quarter, the Zacks Consensus Estimate for domestic subscribers is 57.9 million, while that of international subscribers is 73.3 million. Paid domestic subscribers are expected to be 56.3 million and international subscribers are pegged at 68.7 million.

Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.


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