Forget the NFLX Stock Bears; Here’s Why Netflix, Inc. Could Soar in 2016

NFLX Stock: There Is Good Reason to Believe 75 Million Will HappenThis Could Be Big for NFLX Stock

Netflix, Inc. (NASDAQ:NFLX) analysts have come up with a number: 75 million. That’s how many subscribers the company needs to report in order to boost NFLX stock when it announces its quarterly earnings later today (January 19).

The number of subscribers is the key, because Netflix shareholders are far more interested in the number of streamers around the world than they are by revenues and earnings at this time. The higher the number of subscribers, the better it is for Netflix stock. During its second-quarter earnings report, Netflix said it expected to close 2015 with more than 74 million subscribers and Wall Street expects 74.6 million. (Source: “Will Netflix top 75 million subscribers? It better,” CNN Money, January 18, 2016.)

Anything above this number should send Netflix stock up. The 75-million mark, however, would mark a nice psychological threshold; it is an elegant number, the kind used to celebrate important anniversaries.

At the recent CES event in Las Vegas, Netflix announced a major expansion, one analysts say has come at the expense of earnings, even if it is in line with CEO Reed Hastings’ strategy. In his speech at the Consumer Electronics Show (CES) in Las Vegas, Reed Hastings, co-founder and CEO of Netflix, announced that the company would be launching an expansion simultaneously in more than 130 countries. (Source: “At CES, Netflix Adds Over 130 Countries to Streaming Service,” The New York Times, January 6, 2016.)


Netflix Is Going Global

Netflix is now even available in Guinea-Bissau, but investors are eagerly awaiting its inevitable arrival in China, once shows are adapted to meet Chinese censorship and a suitable partner is found. (Source: “Netflix is now available in almost every country in the world,” The Telegraph, January 6, 2016.)

Netflix is already available in Taiwan. Netflix is also growing thanks to the growing weaknesses in the television cable market.

The expansion will require heavy investments in order to adapt to these new markets. Nevertheless, Netflix relies on original series, but in order to appeal to the new audiences, it will have to adapt the content to match the tastes of these new and diverse audiences, including the production of original content in the individual markets. This is a high-stakes maneuver requiring investments and it could have an impact on financial results that some investors might find too heavy.

In third-quarter 2015, Netflix posted earnings of $0.07 per share, which disappointed analysts, but it also had 42 million subscribers in the U.S. alone. (Source: “Q3 Letter to Shareholders,” Netflix Investor Relations, October 14, 2015.)

The 24 million international subscribers, however, have created a $68.0-million loss and the negative trend is not likely to improve in upcoming quarters. Yet this is not really bad news for NFLX stock. The company expects this, as it heads toward achieving its critical mass of customers.

In addition, Netflix, while not as profitable as it could be, is growing in every area. Netflix stock will benefit from the company’s investments in expanding content. In 2013, Netflix paid $2.0 billion for content; in 2016, it expects to pay $5.0 billion. (Source: “Can HBO keep up? Netflix will spend $5 billion on content in 2016,” BGR, November 14, 2015.)

Netflix this year will present 31 original series, some new and others updated, including more than 20 movies and documentaries, a wide range of specials, and 30 original series for children. This content will be available simultaneously to all subscribers in the world and not all in English. (Source: “Netflix expands into 130 countries,” Broadcast, January 7, 2016.)

Netflix stock will likely grow because the company has established itself as the number one video streaming provider with a global reach—good news for NFLX stock investors.