Netflix Inc. (NFLX - Free Report) is expanding its pay-TV footprint. The company will now be able to stream its content in France, Portugal, Israel, and Dominican Republic, courtesy a recently inked partnership with telecom giant Altice. The service will initially be launched in France and gradually rolled out into the other territories through the year.
Reportedly, the multi-year agreement doesn’t cover Altice’s U.S. cable operations. The Netherlands-based Altice owns the former Cablevision and controls smaller cable operator Suddenlink in the U.S. The company has a subscriber base of almost 50 million.
Netflix has been forging partnerships with cable TV providers to boost international footprint. Partnership with cable giant Liberty Global has aided the company to venture into more than 30 countries. Notably, it also entered the U.K. pay-TV market through a partnership with Liberty Global-owned cable giant Virgin Media in 2013.
The company expanding original content portfolio and improving penetration in international markets were the key catalysts behind strong performance over the last one year. We note that the stock has outperformed the S&P 500 over this period. While the index gained 17.1%, Netflix appreciated 60.9%.
Netflix to Benefit from Pay-TV Subscriber Growth
We believe that Netflix’s improving footprint in the international pay-TV market is an encouraging sign for subscriber base. This is primarily due to the fact that global pay-TV subscriber base is anticipated to grow significantly as per the latest projection from Digital TV Research.
The market research firm expects the number of pay-TV subscribers to pass the 1 billion mark in early 2018 driven by digital pay-TV growth. Although the subscriber growth is expected to decline in the U.S. (a modest 5 million over 2016-2022), international markets – specifically Asia Pacific and Sub-Saharan Africa – are projected to add the majority of 134 million pay-TV subscribers over 2016-2022 time frame.
We believe that international cable TV operators offering subscription based video services like Netflix, Hulu and Amazon (AMZN - Free Report) Prime will definitely benefit from this rapid growth. Netflix’s expanding original content portfolio will be a differentiator in this regard. The company has noted that there will be 30 original movies this year, with expenditure on original content being $6 billion in addition to another billion dollars on marketing, in 2017.
China – India: Key Catalysts for Netflix
According to Digital TV Research, China and India on a combined basis will provide nearly half the world’s pay-TV subscribers. In this regard, Netflix’s licensing deal with Chinese search giant Baidu Inc. (BIDU - Free Report) is worth mentioning.
Although Netflix is unlikely to operate as a stand-alone entity in China due to government regulations, we believe that availability of its shows on Baidu’s online video portal – iQiyi –will improve exposure. Reportedly, with nearly 500 million users, iQiyi is one of the leading online video platforms in China along with Alibaba (BABA - Free Report) owned Youku Tudou, Sohu Video and Tencent Video.
Meanwhile, Netflix has significant growth opportunity in India. The company has already signed a partnership with Red Chillies Entertainment, the production company of Indian film star Shah Rukh Khan. The company is also producing an Indian original series, an adaptation of the bestselling Indian author Vikram Chandra’s novel Sacred Games.
Currently, Netflix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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