The online video service announced Tuesday it will expand into 43 countries in Latin America and the Caribbean, giving investors another reason to bet on its long-term growth.
The move means Netflix has access to a brand new avenue for profit, instead of focusing solely on the developed North American market.
The announcement pushed Netflix shares up about 8% Tuesday. Netflix's phenomenal 1,000% price jump since 2008 – 68% this year alone – has short sellers in a frenzy, thinking the company must be due for a significant pullback.
But as we told you in May, those doubters should reconsider their stance.
Netflix has revolutionized the way people watch movies, and is transforming the way people watch TV. Now it's implementing its media innovations on a worldwide scale.
Netflix joins the growing group of U.S.-based companies like PepsiCo Inc. (NYSE: PEP) and General Motors Co. (NYSE: GM) in targeting emerging-market growth, and analysts say the ventures will pay off.
"I like the fact that Netflix is growing aggressively into emerging economies because that's clearly where the spending patterns show money is going to be," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I think the latest estimates show that there's more than $1 trillion expected to flow into developing economies this year."
The international move is part of Netflix's global strategy to enter markets ahead of rivals Google Inc. (Nasdaq: GOOG), Apple Inc. (Nasdaq: AAPL) and Hulu LLC, which are making more efforts to compete in Netflix's market.
"Our long-term goal is to have a worldwide service at some point," the company said earlier this year.
Netflix's global growth is successfully outpacing the competition, exactly in line with its mission.
"Our competitive strategy relative to other streaming services is simply to grow as fast as we can, so we can afford more content, more marketing, and more R&D than our competitors," the company report in its first-quarter earnings report.
Netflix ventured into Canada last year, and has indicated it could move into two international markets a year starting in 2012. The Latin American push is a huge second foreign venture for the company, offering a subscriber base of 215 million, compared to 245 million in the United States.
"I think generally people were expecting a launch in one country and this was a whole region," Atul Bagga, an analyst at Think Equity, told Reuters. "I think that there is a lot of room for growth in these markets."
Credit Suisse Group AG (NYSE ADR: CS) Senior Analyst John Blackledge told The Wall Street Journal that the new region has a sizable chuck of potential customers. Brazil, Mexico and Argentina alone have nearly 35 million broadband subscribers, he said, compared with 10 million in Canada.
"They're going to roll out in international markets faster than investors think," said Blackledge.
The new subscribers in Mexico, Central America, South America and the Caribbean will be able to access shows and movies later this year, choosing from Spanish, Portuguese and English viewing options.
By targeting regions with active consumers, the company can maintain the rapid growth pace it's had this year. Netflix added 3.3 million subscribers in this year's first quarter, bringing its total to 23.6 million in North America alone. That's more than Comcast Corp. (Nasdaq: CMCSA, CMCSK), whose cable-subscriber ranks shrank by 39,000 to 22.76 million during the same three-month stretch.
The added users boosted first-quarter profit by 87% and revenue 46%.
Fitz-Gerald said the company should also consider expanding into the region that has helped the profit growth of companies like U.S.-based McDonald's Corp. (NYSE: MCD).
"I would rather see Netflix expand into Asia, which generally has stronger economies and stronger currencies, as a means of diversifying its revenue," he said.
Netflix hasn't just advanced its international connections this year. It has cultivated strong working relationships with network executives, who will only get happier with the company as it becomes a bigger global machine. Television networks once scorned the company as an enemy, but they've become converts – even disciples – since they've realized Netflix's ascension is unstoppable.
Now that Netflix has extended its global reach, it has to continue cutting content deals to avoid slowing its hot streak. Its ability to continue providing quality material for subscribers will be key to maintaining the share price.
"As to whether Netflix is overpriced or not, I think the secret remains in its earnings stream, specifically in its content, and how fast that company can maintain growth in the face of copyright protection and other things that have historically been limiting factors," said Fitz-Gerald.
Netflix Inc. shares gained $1.46 yesterday (Thursday) to close at $292.42.
News and Related Story Links:
- The Wall Street Journal:
Netflix to Enter Latin America