NFLX EARNINGS PREVIEW: Netflix Expands Internationally
Netflix focus has turned to international expansion as the fast growing company is looking for new clients. Netflix is working on projects across many countries such as Italy, Mexico, Brazil, Spain, Germany, France, and Turkey. It also has a strong portfolio of shows in India, with over twelve local language originals and twenty local language movies. The latest move will be in London, England, where Netflix will establish a dedicated production hub as the company grows its presence in Great Britain. Examples of the growing number of UK based projects to be filmed this year, include The English Game, Cursed and Jingle Jingle.
Netflix strategy is to expand globally as fast as possible while maintaining profits. The international markets that NFLX has a presence in are growing quickly and have already contributed positively to the bottom line. International markets continue to grow and generate meaningful profits that boost the expansion in the rest of the world. The company has added 24.81 million users from the end of Q1 2018 until Q1 2019.
The stock’s 52-week range is $231.23 to $419.77, and the capitalization stands at 166.9B. In the table below, you can find the NFLX stock price performance from one month to 10 years.
The company for the first quarter of 2019 reported that average streaming paid users increased by 26 percent annually, while the Annual Revenue Per User (ARPU) shrunk by 2 percent over the year due to FX fluctuations. Excluding exchange rate issues, the international streaming ARPU increased 3 percent (YoY). Year over year total revenue growth of 22 percent compares against 40 percent in Q1’18, which boosted from several price changes that took place in Q4 2017 as well as forex. On a forex neutral basis, Q1 2019 revenue grew 28 percent year over year.
The company expects to grow from 60 to 90 million users in the USA, based upon company’s history and the continued growth of online entertainment. The operating margin structure is set mostly top down. The company for the next quarter forecasts the revenues and decides what to spend, and how much margin they want in that period.
Netflix started in 1997 as a DVD rental by mail, the company spent five years struggling to find a sustainable growth plan that was cash flow positive. The company spent most of the next five years competing with Blockbuster. The streaming business started in 2007, and internationally in 2010. The first original series started in 2013. The company became global in 2016, almost twenty years after starting Netflix. I expect in the coming decades, internet entertainment to replace TV, and the NFLX will be the major player in the industry.
The competition has intensified in the last years as big internet and entertainment names enter the market such as Amazon Prime, Disney Plus, and Apple TV. A big advantage of the company is that is offering several different tiers of pricing so that clients can select a plan that best fits their needs. NFLX also tests different approaches to pricing with different plans and prices, to better cover client demand.
FX exposure is a new headache for the company as it is growing internationally. NFLX engages in hedging, in which the spending on international markets is paid in the country currency to match the revenue collected from local users. The company also adjusts prices aggressively to mitigate the negative effects of foreign exchange risk.
In the technical side, the picture is bullish for the stock as it trades above all major moving averages. The uptrend started from June 14 can lead the prices to new 52 week high; the catalyst for this move can be provided by the 2Q results. Immediate support for the stocks stands at $385 the high from May 3rd, while a break above can drive prices at $419 the 52 weeks high. On the downside, first support stands at $360 the 50 and 100-day moving average, while next support can be found at $342 the low from June 17th.
NFLX will release its 2Q 2019 financial results and outlook on Wednesday, July 17th. The market expects EPS of $0.56 while the consensus for revenue is at $4.94B.
Written by Nikolas Papas, Market Strategist, InvestingCube.com and ATFX
Nikolas Papas has been in the finance industry for over fifteen years in roles spanning across. Europe and USA and has acquired in-depth knowledge and experience within many aspects of the financial markets. Nikolas has worked for some of Europe's leading brokers, as an equity Analyses, and a trader managing accounts for both private and corporate investors. He enjoys both the fundamental and technical aspects of trading and focuses on stock markets and all FX majors. Currently, Nikolas provides analysis and comments on online financial publications. He studied and completed a degree in Economics (BSc), and Finance (MSc).
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