Netflix Reports Record Highs Driven By Subscriber Growth

According to a research report by MarketsandMarkets, the global Video on Demand market is expected to grow 19% annually over the period 2014 through 2019 to $61.40 billion. The report reveals that while the American markets will be the largest revenue contributors for the industry, the emerging markets of Asia Pacific and Middle East and Africa will see the highest growth.

Netflix’s Financials
Netflix’s (Nasdaq: NFLX) second quarter revenues grew 23% over the year to $1.64 billion, marginally short of the Street’s estimates of $1.66 billion for the quarter. EPS of $0.06 was, however, ahead of the market’s estimated earnings of $0.05 for the quarter.

International revenues grew 48% to $455 million and domestic revenues grew 22% to $1.03 billion. DVD revenues continued to decline and reported a 16% reduction to $164 million.

Netflix’s revenues may have disappointed the Street, but their subscriber metrics haven’t. During the quarter, Netflix added 3.3 million new members, compared with 1.7 million added a year ago. They ended the quarter with more than 65 million global subscribers and were particularly benefited by the growth in international markets. For the quarter, Netflix recorded an addition of 2.37 million new members in international markets and 1.026 million in the domestic markets. They ended the quarter with 23.25 million international streaming subscribers and 42.3 million domestic subscribers. The Street had forecast an addition of 1.94 million international new members and 636,000 domestic subscribers.

For the current quarter, Netflix forecast $1.59 billion in streaming revenues and 3.5 million net subscriber additions. They expect to end the quarter with an EPS of $0.07 compared with the Street’s forecast of $0.05.

Netflix’s International Expansion

Netflix did not expand into any new region during the quarter, but they were already seeing strong growth in the New Zealand and Australian markets, which were established in March 2015. Their next target market is Japan followed by Spain, Italy, and Portugal in the last quarter this year.

Netflix is also looking at growing in China which offers a huge potential in a careful manner. They are reported to be in talks with Jack Ma-backed Wasu Media Holding to help them enter into the territory. Given China’s strict censorship laws, entering into the country is going to be a more expensive and a time consuming affair.

Netflix’s Content Focus

The domestic market for Netflix has already matured and for the company to display growth in this market, it has to deliver a strong content line-up. That is exactly what they have been focusing on so far. During the last quarter, they released the highest number of original shows so far. The line-up of new shows that have received positive reviews not only from domestic but also from international viewers, include names like Marvel’s Daredevil, Grace and Frankie, Sense 8, and the third season of Orange is the New Black. To cater to the non-English markets, Netflix will be releasing original new series Club de Cuervos and Narcos later this quarter.

They are now expanding into the original film genre and will be releasing a war drama Beasts of No Nation in October this year. Last quarter, they also announced the production of a satirical comedy War Machine that will star Brad Pitt. While these movies will be available to Netflix’s members for streaming, they will also be making a big screen debut in select theaters.

Netflix’s stock is trading at $123.52 with a market capitalization of $52.62 billion. 

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