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For a streaming company that doesn’t have an ad-supported model, these are good times. Everyone is now more aware than ever before that an ad-supported business essentially guzzles your data, killing your privacy in the process.
Not just that - the data search is getting closer to home with things like Google Home and Amazon Echo. In fact, recently, Amazon (AMZN - Free Report) even filed a patent for a technology that will allow Alexa to listen to you all the time so it can anticipate your needs. And of course Facebook and Alphabet (GOOGL - Free Report) have elaborate tracking systems, so they know most things about you.
Netflix (NFLX - Free Report) isn’t that sort of company. It believes in charging you a price for the programming it delivers and raising that price when required (as it did in 2017-end to $10.99).
And in exchange, it drops billions into original programming series and shows (it’s planning to spend up to $8 billion this year), so you can consume all you like from wherever in the world you like - well almost, since it’s available in around 200 countries right now.
Spending on licensed content is also on the rise, with the company expecting to spend $17.9 billion this year, up from $15.3 billion in 2017.
And the strategy is paying dividends because the company saw international net subscriber additions of 5.46 million in the last quarter, topping street expectations of around 5.02 million. That’s nearly 74% of total subscriber adds of 7.41 million (street estimates were lower at around 6.5 million). Note that the 1.95 net subscriber adds in the U.S. came despite the just-announced price increase.
Add to that the fact that it’s getting cozier with Comcast (CMCSA - Free Report) , which will now be selling Netflix subscriptions as part of its TV bundles.
Given the building momentum, it’s not surprising that second quarter guidance was better than expected: revenue of $3.9 billion and earnings of 79 cents (the Zacks Consensus is revenue of $3.89 billion and earnings of 65 cents). Expected net subscriber adds are 6.2 million versus street estimate of 5.24 million (974,000 domestic and 4.27 million international).
A Few Things to Keep in Mind
One thing that investors should consider is the rising cost of content as companies like Amazon and Apple (AAPL - Free Report) bid up prices on account of their deeper pockets.
Since Netflix continues to burn cash (although cash used in operations was down to $236.8 million from $343.9 million last year and $488.0 million in the December quarter), rising content costs are a concern. So the cash burn number is worth keeping an eye on.
Another concern would be Disney (DIS - Free Report) pulling its new content from the platform beginning next year as it prepares to launch its own service and even Time Warner and Fox bending toward exclusive deals with competing platforms like Hulu.
Last Word
Netflix may have been a tech company at some point, but it’s increasingly not so. In the words of CEO Reed Hastings: “I’d point out that we’ll spend over $10 billion on content and marketing and $1.3 billion [this year] on tech…Just objectively, we’re much more of a media company in that way than pure tech. Now, of course, we want to be great at both, but again, we’re really pretty different from the pure tech companies.”
As Netflix increases focus on originals, the cost of content can come down because it won’t have to compete with the big technology companies. At the same time, it will increasingly be subject to competition from the leading media companies. This is actually a good thing because Netflix has the kind of offering that sets it apart from both the media players and the tech players and it could take a while for either side to catch up. In the meantime, it’d all about keeping its nose to the grindstone.
Breaking News: Cryptocurrencies Now Bigger than Visa
The total market cap of all cryptos recently surpassed $700 billion – more than a 3,800% increase in the previous 12 months. They’re now bigger than Morgan Stanley, Goldman Sachs and even Visa! The new asset class may expand even more rapidly in 2018 as new investors continue pouring in and Wall Street becomes increasingly involved.
Zacks’ has just named 4 companies that enable investors to take advantage of the explosive growth of cryptocurrencies via the stock market.
Image: Bigstock
Netflix Shares Are Soaring, and for Good Reason
For a streaming company that doesn’t have an ad-supported model, these are good times. Everyone is now more aware than ever before that an ad-supported business essentially guzzles your data, killing your privacy in the process.
Not just that - the data search is getting closer to home with things like Google Home and Amazon Echo. In fact, recently, Amazon (AMZN - Free Report) even filed a patent for a technology that will allow Alexa to listen to you all the time so it can anticipate your needs. And of course Facebook and Alphabet (GOOGL - Free Report) have elaborate tracking systems, so they know most things about you.
Netflix (NFLX - Free Report) isn’t that sort of company. It believes in charging you a price for the programming it delivers and raising that price when required (as it did in 2017-end to $10.99).
And in exchange, it drops billions into original programming series and shows (it’s planning to spend up to $8 billion this year), so you can consume all you like from wherever in the world you like - well almost, since it’s available in around 200 countries right now.
Spending on licensed content is also on the rise, with the company expecting to spend $17.9 billion this year, up from $15.3 billion in 2017.
And the strategy is paying dividends because the company saw international net subscriber additions of 5.46 million in the last quarter, topping street expectations of around 5.02 million. That’s nearly 74% of total subscriber adds of 7.41 million (street estimates were lower at around 6.5 million). Note that the 1.95 net subscriber adds in the U.S. came despite the just-announced price increase.
Add to that the fact that it’s getting cozier with Comcast (CMCSA - Free Report) , which will now be selling Netflix subscriptions as part of its TV bundles.
Given the building momentum, it’s not surprising that second quarter guidance was better than expected: revenue of $3.9 billion and earnings of 79 cents (the Zacks Consensus is revenue of $3.89 billion and earnings of 65 cents). Expected net subscriber adds are 6.2 million versus street estimate of 5.24 million (974,000 domestic and 4.27 million international).
A Few Things to Keep in Mind
One thing that investors should consider is the rising cost of content as companies like Amazon and Apple (AAPL - Free Report) bid up prices on account of their deeper pockets.
Since Netflix continues to burn cash (although cash used in operations was down to $236.8 million from $343.9 million last year and $488.0 million in the December quarter), rising content costs are a concern. So the cash burn number is worth keeping an eye on.
Another concern would be Disney (DIS - Free Report) pulling its new content from the platform beginning next year as it prepares to launch its own service and even Time Warner and Fox bending toward exclusive deals with competing platforms like Hulu.
Last Word
Netflix may have been a tech company at some point, but it’s increasingly not so. In the words of CEO Reed Hastings: “I’d point out that we’ll spend over $10 billion on content and marketing and $1.3 billion [this year] on tech…Just objectively, we’re much more of a media company in that way than pure tech. Now, of course, we want to be great at both, but again, we’re really pretty different from the pure tech companies.”
As Netflix increases focus on originals, the cost of content can come down because it won’t have to compete with the big technology companies. At the same time, it will increasingly be subject to competition from the leading media companies. This is actually a good thing because Netflix has the kind of offering that sets it apart from both the media players and the tech players and it could take a while for either side to catch up. In the meantime, it’d all about keeping its nose to the grindstone.
Recommendations
Netflix has a Zacks Rank #2, which means it’s worth buying despite the rich valuation. But you may also want to consider the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Breaking News: Cryptocurrencies Now Bigger than Visa
The total market cap of all cryptos recently surpassed $700 billion – more than a 3,800% increase in the previous 12 months. They’re now bigger than Morgan Stanley, Goldman Sachs and even Visa! The new asset class may expand even more rapidly in 2018 as new investors continue pouring in and Wall Street becomes increasingly involved.
Zacks’ has just named 4 companies that enable investors to take advantage of the explosive growth of cryptocurrencies via the stock market.
Click here to access these stocks. >>