High momentum stocks such as Netflix, Inc. (NASDAQ:NFLX) tend to have more dramatic downturns when markets head south. Even a solid earnings report wasn’t able to save shares of plunging NFLX stock.
With shares dipping below $100.00 each, does the company still have a chance of winning in 2016? The answer is a resounding yes. Here’s why.
The No. 1 Reason to Like NFLX Stock
If you look at the company’s earnings report of the past several quarters, you’ll see that the bulk of the growth in Netflix’s subscriber base came from its international markets. Now, Netflix’s growth engine overseas is about to get even more powerful.
At this year’s Consumer Electronics Show (CES) held in Las Vegas, Netflix CEO Reed Hastings made the announcement that the company is becoming almost fully global. (Source: “Netflix is Now Available Around the World,” Netflix, Inc., January 6, 2016.)
The announcement came as a surprise because Netflix’s previous expansion plan only mentioned launching in South Korea, Taiwan, and Singapore in early 2016. Now, the company is launching in 130 new countries at once. With the new markets added, the on-demand video streaming giant is available in 190 countries in the world. It also added Arabic, Korean, and Simplified and Traditional Chinese to the 17 languages it already supports.
When it comes to on-demand video streaming, no company has a larger footprint than Netflix. Amazon.com, Inc.’s (NASDAQ:AMZN) “Amazon Video” is only available in a handful of countries—the U.S., the U.K., Germany, Austria, and Japan, with plans to expand to India soon. Another competitor to Netflix, Hulu, LLC is only available in the U.S. at the moment.
Becoming almost fully global (except for China) is a great move for Netflix, as it gives the company a huge upper hand on its rivals. Due to the fact that Amazon Video and Hulu are not available in most countries, Netflix becomes the only choice and could enjoy first mover advantage in those markets.
To be more specific, by moving into these 130 additional countries, Netflix expands its addressable market by 190 million broadband homes. The company’s total addressable market is now up from 360 million homes to 550 million homes.
Netflix is targeting outward-looking, affluent consumers in its new markets at first, but could reach a much broader audience as it adds more content and supports more languages. The company expects many years of growth to come in its global markets and “material global profits beginning in 2017.” (Source: “Q4 15 Letter to Shareholders,” Netflix, Inc., January 19, 2016.)
Despite the fact that NFLX stock price took a sharp turn after its most recent earnings report, the company’s results weren’t that bad at all. In fact, Netflix had a pretty solid quarter.
In the fourth quarter of 2015, Netflix’s revenue surged 23% year-over-year to $1.82 billion, roughly in line with Wall Street’s forecast of $1.83 billion in revenue. However, the best part was the company’s earnings. Netflix posted earnings of $0.10 per share in the fourth quarter, much better compared to analysts’ estimate of $0.02.
Netflix’s subscriber growth also turned out better than expected. Although growth in the U.S. slowed down due to the company’s high penetration in the country, its performance in markets outside of the U.S. more than made up for it. In the fourth quarter, Netflix had 4.04 million net additions internationally, beating Wall Street estimates of 3.5 million.
With new markets opening around the world, Netflix’s growth momentum is expected to continue in 2016. The company is projecting 6.1 million net additions in the first quarter, which would represent a substantial improvement over the 4.88 million added in the year-ago period.
The Bottom Line on Netflix Stock
Reed Hastings’ announcement means one thing: Netflix still has a long growth runway ahead of it.
The company’s business is still sound and its outlook is better than ever. Don’t be fooled by NFLX stock’s fall from grace.