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Is Netflix a Good Long-Term Buy?

tyokunbo

tyokunbo

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Netflix (NFLX) gave investors a year-over-year return of almost 140%. The company is a leader in the internet TV sector. It has over 44 million members in 41 countries. The members enjoy more than one billion hours of TV shows and movies per month. Netflix provides services that make subscribers to stream TV shows and movies directly to numerous devices in the U.S. and internationally. Its services are enabled over PCs, Macs, game consoles, smart TVs, home theater systems, Internet video players, digital video recorders and mobile devices. The company was founded in 1997 and is headquartered in Los Gatos, Calif.

Netflix’s Financials

In the last quarter, Netflix reported earnings that were more than six times higher than what it earned in 2012. The company’s net income totaled $48 million for the quarter, up from $8 million a year ago. Netflix finished last year with more than 44 million members. The company's domestic membership grew by 2.33 million, 14% more than the net adds during the same period last year. Internationally, Netflix added 1.74 million users. The company’s international loss shrank to $57 million from $105 million a year earlier.

Positive Outlook

The company predicts first-quarter profit of $48 million, or 78 cents a share, compared with analysts’ projections of 75 cents. In the first quarter, Netflix expects an almost 60% increase in net additions from the same period in the prior year. Also, the company expects to end the first quarter of 2014 with 48 million members. In other words, it expects to add 2.25 million subscribers, which would exceed the prior year by around 11%.

Initiatives

In 2013, Netflix continued to expand its original content offerings. So far, the company’s original content series have received over 80 major award nominations and wins. Netflix recently announced that it will soon be home to three new original series aimed at kids. They are based on characters from popular films. Netflix's original contents have become popular with kids and are finding a wide audience. They tend to increase the company's subscriber base.

In the fourth quarter, Netflix rolled out its new user interface for TV devices. It is coupled with Netflix’s new technology platform for TV devices. Netflix started working on this new platform 18 months ago. The company secretly tested it in people’s living rooms for months. The initiative will enable the company to reach lower-powered devices that will allow a future revenue growth in new areas.

Competition

Netflix faces competition from Amazon (AMZN), Time Warner’s HBO (TWX) and Google (GOOG) in the Internet video sector. Netflix has a competitive advantage over its rivals. It continues to license and produce more exclusive content for its direct-to-consumer businesses. It is also not affected by big bundle questions.

Wings Across the World

Netflix operates in the domestic streaming, domestic DVD, and international streaming segments. Its international segment engages in streaming services primarily in Canada, Latin America, the UK, Ireland, Finland, Denmark, Sweden and Norway.

Europe at a Glance

Netflix has rolled different programs in Europe. For instance, it initiated streaming applications for interesting programs in the United Kingdom, Sweden and Denmark. These markets offer huge growth potentials. For instance, UK consumers are adopting faster broadband packages to cater for their use of a video streaming service. Nordic countries dominate broadband Internet connections access rankings.

Netflix in the Americas

Netflix is aggressively promoting its online media across Brazil and Canada. Netflix has commissioned a three-part mini series called A Toca, which stars local web video stars and will only be distributed to Brazilian subscribers. The company might have doubled its Canadian subscriber base in Canada since 2012. Media Technology Monitor says about 25% of Anglophone Canadians had signed up for the video streaming service.

Conclusion

Though Netflix has to pay for content delivery on top of content costs, the company has still been able to give good returns to investors. In addition, it has continued to make investments in sectors that could bring shareholder value in the future. Netflix has a lot of room for its growth internationally. Also, it has not exhausted its options in the U.S. The company will provide profits to its backers in the near term.


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