Netflix Stock Makes International Inroads
Earlier this year, the bulls and bears squabbled over Netflix, Inc.’s (NASDAQ:NFLX) international expansion. Initial numbers were weak, leading to a massive fall in Netflix stock (NFLX) and the general feeling that Netflix had over-estimated international subscriber growth.
In other words, it seemed like the bears had won. That notion is being challenged by a recent deal between Netflix and an international cable provider called Liberty Global PLC. (Source: “Netflix To Be On Liberty Global Set-Top Boxes,” The Wall Street Journal, September 14, 2016.)
The agreement will make it easier for Netflix to reach 29 million subscribers in Europe, Latin America, and the Caribbean. People won’t have to give up their cable subscriptions, or even change devices. The set-top boxes from Virgin Media Inc. (NASDAQ:VMED) a subsidiary of Liberty Global will provide direct access to Netflix.
Analysts are starting to consider this a major catalyst for NFLX stock. Rather than thinking of Netflix stock as “the end of pay-TV,” they’re considering it a force for transformational change. Just because Netflix is dragging cable providers into the 21st century doesn’t meant those cable providers are doomed.
For instance, Netflix signed similar deals with American operators like Comcast Corporation. It is still fighting these companies over data caps, but that won’t stop the forward march of technological progress. Customers want streaming options across different devices, but they don’t necessarily want to give up pay-TV.
The set-top box arrangement seems to be the compromise between Netflix and its legacy competitors. According to Hub Research LLC’s April report, 72% of people prefer watching content on their TVs. As such, the integration of Netflix into set-top boxes could spur an increase in subscriber growth, particularly in overseas markets where cord-cutting is not as prevalent.
If international subscriber growth does increase, it could start a bullish run in Netflix stock. After all, shares of NFLX stock fell 15% when the company announced lower-than-expected numbers last quarter. They had expected two million new users from foreign markets, but only gained 1.52 million. (Source: “Netflix posts earnings of 9 cents a share vs. 2 cents expected,” CNBC, July 18, 2016.)
Now that 29 million people in Europe, Latin America, and the Caribbean are getting Netflix directly on their TVs, there’s hope that the company could kick-start a surge in subscriber growth. Since that is the metric investors seem obsessed with, Netflix stock could be on the verge of extraordinary gains.
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