NFLX Stock Forecast for 2016
Even after a year of spectacular growth, Netflix, Inc. (NASDAQ:NFLX) could still have room to run in 2016. The company is now operating in almost every country on Earth, suggesting that NFLX stock could have yet another breakout year.
CEO Reed Hastings had a vision for the company and it’s finally coming to fruition. He articulated that vision perfectly before an audience at the 2016 Consumer Electronics Show (CES 2016), saying that, “Right now, you are witnessing the birth of a global TV network.” (Source: “At CES, Netflix Adds Over 130 Countries to Streaming Service,” The New York Times, January 6, 2016.)
Some might be tempted to think that Hastings was simply grandstanding. After all, CES is basically a bat mitzvah for the latest wave of disruptive technology, a place and time for founders to parade their salesmanship.
At such an event, it’s only natural to expect CEOs to inject some drama into their speeches. A global TV network? Isn’t that a little excessive? Doesn’t Netflix just qualify as a distribution channel?
Actually, no, Mr. Hastings wasn’t stretching the truth at all. Netflix is a global TV network and that, rather than its streaming capabilities, is what could cement huge gains in 2016.
Netflix Goes Global
The company surprised investors when it announced a massive expansion on January 6. In the blink of an eye, Netflix went live in 130 countries, the notable exception being China. (Source: “Netflix Just Launched in 130 New Countries. Like, This Morning,” Wired, January 6, 2016.)
Of course, since China represents about one-quarter of all broadband connected households, there is room for improvement. However, it would be ridiculous to use the absence of China as a counterargument to Hastings’ claim.
The Chinese government has long been resistant to firms that could undermine their measure of control. Take Apple Inc., for instance. It was several years before “iPhones” were allowed in Beijing or Shenzhen, but that doesn’t mean Apple isn’t a global company.
Likewise, Netflix will take some time before it can negotiate entry into China’s enormous market, but the company can spend that time working out any kinks in its current growth.
For instance, it only has English programs in both Turkey and Russia, even though a large portion of the population in each country doesn’t speak English. By connecting with local artists, Netflix could develop programming for its international markets.
Luckily, the company plans to spend $6.0 billion on original programming in 2016, yielding upward of 600 hours of content. With that amount of exclusive material, how could anyone claim Netflix hasn’t graduated from a streaming service to a network? (Source: Ibid.)
The Effects of Expansion on Netflix Stock
Since Netflix operates on a subscription-based model, scale is everything. Getting as many subscribers as possible is the only way to seek long-term profitability in an industry with such heavy capital expenditures.
Making TV shows doesn’t come cheap. Making quality TV shows is even harder, yet it’s the only way Netflix can bind customers to its platform. People will stick to their favorite shows—not their favorite service. That’s why Netflix made the jump from streaming service to full-blown TV network.
And the reason the company launched worldwide is likely because it knows Hulu LLC and Amazon.com, Inc. are competing for licensing rights. Both services are mimicking the Netflix approach, but they have a lot of lost ground to make up.
Netflix CEO Reed Hastings doesn’t want to give these companies the chance. By going ballistic in its expansion, Netflix is trying to get enough volume to crush its competitors. If the company executes the plan correctly, it could end this game before it ever truly began. That’s what’s so attractive about NFLX stock.