Netflix (NFLX, Financial) picked this year to be the one that forms the basis for its annual revenue growth. The company expanded globally, adding more than 130 countries to the list of countries where its services are available.
Since then, the company’s subscription numbers have increased to 81.5 million, with nearly 7 million added in the most recent quarter. In the company’s first quarter results, it revealed that subscription growth rate may have peaked, but that does not mean that Netflix won’t be adding more subscribers to its customer base.
Now, based on the current subscription numbers and a mid-high single-digit growth rate, Netflix could soon hit 100 million subscribers. The company is also set to increase its standard membership fee to $9.99, which means that all those who initially had the privilege of paying $7.99 or $8.99 will see their bills increase by $1 to $2.
If Netflix manages to implement this plan and still reaches 100 million subscribers by the end of the year, then the company could be set for monthly revenue of about $999 million, or roughly $1 billion. That’s the figure that would be expected for January 2017.
Currently, Netflix reports annual revenue of about $6.8 billion based on the company’s trailing 12-month period. With 100 million subscribers and a standard monthly subscription fee of $9.99, it means that, in 12 months and with no further growth/decline in subscription numbers, Netflix could report revenue of $12 billion.
Now if you add a decent quarterly growth rate in subscription numbers, then it would be possible to post revenue of $13 billion to $14 billion by the end of 2017. This would imply a growth of 100% over the 12-month period.
Could Amazon encroach on Netflix’s business and discard that dream?
Amazon (AMZN, Financial) has introduced a monthly payment package for the Amazon Prime streaming service, which will compete directly with Netflix’s subscription packages. This comes following a flurry of Amazon Prime customer complaints about the company, countered by the introduction of flexible packages as alternatives to its annual subscription package.
Amazon Prime customers can now pay $10.99 per month. The package will include all the benefits and features of an annual Prime membership, which gives access to movies via Prime Video and access to music via Prime Music and free shipping.
Customers can also opt to subscribe to the stand-alone Prime Video package, which gives them access to Amazon’s library of original and licensed movies and TV shows for just $8.99 per month. This package is the one that compares closely to Netflix’s video streaming service. It, however, excludes access to Prime Music and free shipping. Nonetheless, those who opt for the annual package will effectively receive a 25% discount given the subscription fee of $99. Making monthly payments would equate to a total annual fee of $131.88.
Amazon is encroaching in a space that also includes Hulu’s streaming service that comes in two packages: the ad-supported monthly package at $7.99 and the ad-free package that costs $11.99 per month, equivalent to Netflix’s most expensive package.
Based on these numbers, Amazon appears to be the one posing the biggest threat to Netflix. The Seattle-based ecommerce giant’s monthly subscription of $10.99 is cheaper than Netflix’s most expensive package and also comes with additional services, such as free shipping and access to Prime Music.
However, in the end, it could come down to which streaming service offers better content. Netflix has teamed up with Marvel to produce and distribute TV shows based on Marvel’s cinematic universe. The company has already aired two character titles from Marvel and three more are in the pipeline.
Netflix is also teaming up with leading movie actors and directors to produce original movies. This could play a huge role in retaining its current customer base as well as poaching for new customers from other networks such as Amazon and Hulu.
Conclusion
Netflix appears to have a better platform for the streaming business; given its specialization and experience, it is odds on to be every investor’s preferred stock in the online video streaming market.
If the company can continue to grow its numbers significantly, then there is no reason why its revenue shouldn’t hit double figures in the billions within the next 12 months.
