Netflix (NFLX - Free Report) is banking on the longest running American sitcom creator to bring it more success than Twenty-First Century Fox (FOXA - Free Report) experienced with the hit show - The Simpsons.
The company has roped in Matt Groening to create another Netflix original, Disenchantment, which will be available as a 10-episode series starting this Friday. The Simpsons creator brings the animated series centered “around a drunken princess, an elf and a demon.”
Expanding Original Portfolio Bodes Well for Investors
Investments in original content have helped Netflix dominate the online video streaming market. Shares have skyrocketed 70% compared with the industry’s rally of 22.6% in the year-to-date period.
The company has roped in some big names to produce new content for the platform. Notably, Netflix is set to release 470 originals by 2018, which will take the total count for the year to nearly 1,000.
Understandably, demand for original content is expected to further help Netflix expand its subscriber base, which is definitely going to translate into higher profits.
Higher Spending Can Dent Profits
However, spending on licensed content is also on the rise, with the company expected to shell out $17.9 billion this year, up from $15.3 billion in 2017.
Furthermore, the streaming company plans to spend around $1.3 billion on technology and development this year. Speculations are rife that Netflix might eventually expand beyond its current on-demand TV and movie model to offer live news or sports, with the likes of Facebook (FB - Free Report) , Twitter (TWTR - Free Report) , and Amazon all jumping on the live content bandwagon.
However, such enormous spending can dent Netflix’s profitability in the near term, unless subscriber addition rebounds. Notably, subscriber additions in the last reported quarter missed management’s expectations.
Moreover, huge debt levels and expected negative free cash flow for years to come will likely pull margins down.
Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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