Netflix, Inc. (NASDAQ: NFLX)
Netflix has been a major topic of discussion among investors throughout the first part of 2016, and for good reason. The company announced, in late 2015, that it would be taking its services worldwide. While this expands the company’s audience in a big way, the most recent earnings report showed concerns with regard to growth in the United States. Nonetheless, NFLX has a secret weapon that will finally be ready to fire by September. Today, we’ll talk about the concerns with regard to growth in the US, why I believe the global scale outweighs local concerns, and the secret weapon that the company will be able to employ in September. So, let’s get right to it…
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Why Investors Are Concerned About NFLX
Netflix is a great company. However, there is one area where the company has concerned investors; that area is user growth in the United States. On the most recent earnings report, investors saw that NFLX missed the mark when it comes to domestic subscriptions growth. The reality is that the United States is where the company started, and if it can’t get subscription growth in the US, chances are that it will struggle abroad. Don’t get me wrong, there was definitely growth in the quarter, it simply wasn’t what investors wanted to see.
Why I’m Not Concerned About User Growth
While less-than-expected growth in the United States may be concerning to some investors, I’m not concerned at all. The reality is that Netflix is on a clear path to greatness. This all started last year when the company announced that it would be opening the flood gates by taking its services to the global playing field. In one move, the company went from only offering services to a couple of countries to offering services to just about every country in the world, with the exception of China and countries where trade from the United States is not allowed.
This is a huge move. At the end of the day NFLX is a favorite choice for online, streaming entertainment in the United States. In fact, the company takes about 45% of the market share in the country. It’s entirely possible that the company has saturated the United States market, leading to less-than-exciting user growth in the domestic sense. However, when it comes to the global playing field, the company has yet to even scratch the surface. This means that there are plenty of opportunities for strong global user growth, and I believe that this will drive growth in the stock moving forward!
Don’t Forget The Secret Weapon
As if taking the company global and expanding the audience dramatically wasn’t enough, NFLX also has a secret weapon. I believe that this weapon will lead to big gains in users in the United States and abroad. You see, a few years ago, in 2012, the company signed an exclusivity deal with Walt Disney. Under the deal, starting in September of 2016, Netflix will be able to stream all Disney films. This includes Marvel, Pixar, and even Star Wars titles! In my opinion, this is going to be an incredibly big move for the company. After all, no other company has been able to capture the imaginations of consumers, young and old, like Disney. Being able to stream the films that capture imaginations will give NFLX a big leg up on the competition.
While user growth in the United States may be concerning at the moment, global user growth is likely to pick up the slack and lead to big gains for Netflix and its investors. This, in combination with the fact that the company will be able to stream Disney movies relatively soon, could catapult NFLX to new highs. All in all, I’m expecting to see gains!
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What Do You Think?
Where do you think NFLX is headed moving forward? Share your opinion at the CNA Finance Forum!
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