Netflix (NFLX, Financial) is the world’s leading Internet television network with more than 50 million members in nearly 50 countries enjoying more than two billion hours of TV shows and movies per month, including original series. For one low monthly price, Netflix members can watch as much as they want, any time, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Netflix is an increasingly global Internet TV network offering movies and TV series commercial-free, with unlimited viewing on any Internet-connected screen for an affordable no-commitment monthly fee.
A look at the performance recently
Strengths of the company are visible in multiple areas, such as its robust revenue growth, good stock price performance and impressive record of earnings per share growth. In the third quarter, it added 980,000 domestic subscribers. In the last quarter, NFLX added more than 3 million members, ending Q3 with 53.1 million global members and $1.22 billion in revenue. Netflix is focusing on adding another 4 million members in Q4, ending 2014 with more than 57 million global members.
U.S. contribution margin grew about 500 bps to 28.63% in Q3. After achieving 30% contribution margin, likely in Q1 or Q2 of next year, the company plans to grow margins an average of 200 basis points per year for the following years. Ideally, it will achieve 40% contribution margin five years after achieving 30%.
In Q3, it launched several new original series, documentaries and comedy specials, while ensuring future access to one of the most successful and globally appealing series of the North American fall TV season, Gotham. In the second year of qualification as a programmer, Netflix took home seven Emmy awards.
Operating income nearly doubled y/y to $110 million. The company finished the quarter with $1.7 billion in cash. Total streaming content obligations increased to $8.9 billion in the quarter from $7.7 billion at the end of Q2, which includes $3.6 billion on the balance sheet. The increase was driven by the multi-year commitments associated with the latest market launches in Europe and the continued expansion of our original programming, including the first original movie Crouching Tiger Hidden Dragon: Green Legend. (Source: Company’s Website)
More opportunities
Netflix is spending close to $3 billion a year for content. The management of the company statedthat the U.S. market holds opportunities worth 60 million to 90 million. Netflix how has more U.S. subscribers than Time Warner’s (TWX, Financial) HBO. Netflix offers much better content and user interface when compared to its immediate competitors.
The streaming service will expand its footprint on the European continent this year, as per CEO Reed Hastings. Morgan Stanley is bullish on Netflix’s European growth prospects, projecting it will add 30 million international subs from 2014 to 2018.
NFLX will invest in 2014 over $400M on technology development to continue its service and app on the very broad range of platforms they support.
To end
NFLX can gain more penetration in the U.S. The management of the company has been excellent in widening and working on its long-term vision. It was the second-best performer in the U.S. market in 2013, with shares rising 300%. It is making significant efforts to attract new customers. Netflix has come a long way, and its future looks promising.
