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Netflix’s (NFLX) International Growth to Drive Q3 Earnings


Netflix’s NFLX expanding international footprint is likely to drive its third-quarter 2018 results, which is scheduled to be reported on Oct 16.

The streaming platform’s efforts to attract viewers through investments in local programming have added significantly to its user base. In the last reported quarter, the company added 4.47 million of subscribers. Paid members were 68.39 million, up 40.4% from the year-ago quarter.

This drove International Streaming revenues, which soared 63.2% year over year to $1.92 billion, and accounted for 49.1% of total revenues.

Netflix projects international revenues to exceed domestic revenues in the to-be-reported quarter. International streaming revenues are expected to be $1.97 billion, $4 million more than domestic revenues. The figure is in line with the Zacks Consensus Estimate for third-quarter revenues.

Click here to know how the company’s overall Q3 performance is expected to be.

Local Content & Production Hubs Key Catalysts

Netflix’s aggressive expansion into the international markets has helped it negate stiff competition in the domestic market. The company’s whopping budget ($8 billion for new content production), focus on local programming and strategy to develop international production hubs are expected to strengthen its international footprint.

Netflix, Inc. Revenue (TTM)

Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote

Netflix is investing significantly in promoting local content. In fact, the company is well-ahead of its U.S.-based competitors like Amazon AMZN, Alphabet’s GOOGL YouTube and Facebook FB in meeting the recently prescribed EU quota of at least 30% local programming.

Netflix plans to add more regional languages to make the service more appealing. It already offers content in over 24 languages and has created 80 shows in 30 international markets.

Notably, Netflix has expanded its presence in India through web-television series like Sacred Games and Ghoul.

Moreover, establishment of production hubs is a positive. During the third quarter, the company established a production hub in Madrid, Spain. Further, the inclusion of Netflix into Sky’s pay-TV packages presents significant growth prospect for the company.

These initiatives are expected to boost international subscriber base in the third quarter. Netflix anticipates adding 4.35 million subscribers in the international segment, much more than 0.65 million subscribers expected in the domestic streaming segment.

However, competition is also intensifying in the international markets, not only from regional players but also from U.S.-based players like Amazon, YouTube and Facebook. These companies are spending heavily in regional content to increase user base.

It is worth noting that free streaming content from Facebook and YouTube is likely to put Netflix’s pricing strategy under stress, particularly in the Southeast Asia. YouTube is also mulling an ad-free paid streaming platform, YouTube Premium, in India.

Moreover, Amazon Prime, which offers host of services, apart from video streaming, is gaining rapid traction in these regions, primarily due to its competitive pricing structure.

These doesn’t bode well for Netflix, which 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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