Netflix Inc. (NFLX) is expanding its reach into newer regions as it is set to launch its Internet movie subscription service in Latin America. It has also announced the expansion of its service in the Caribbean by the end of this year. This would mark Netflix’s second venture outside the United States, after it had started its service in Canada last September.
Netflix subscribers, in countries such as Mexico, South and Central America and the Caribbean, will be able to stream a wide range of movies and popular TV shows on any gadgets that can be connected to the Internet. The service will be available in Spanish, Portuguese and English. However, the company has not disclosed any pricing plans or specified any date for the availability of the service.
Netflix in its last quarterly earnings call had expressed its interest to expand its international operations. We believe that Internet Video Streaming will become a major activity in these markets, bolstering the company’s subscriber base. To popularize its service among the locals, the company will likely team up with local content providers for regional language programs.
On the domestic front, Netflix has been partnering with several big Hollywood production houses, such as Paramount Pictures, Twentieth Century Fox and Miramax studios, for new content additions. We believe that these content additions will enable Netflix to reduce its dependence on cable TV operators and also provide the necessary competitive edge over its peers in the emerging market of online video streaming.
Netflix has been transitioning from the mail-order DVD rental business model to an online movie streaming company. This should prove to be a positive for the company, since online streaming does not require handling and mailing charges. Therefore, the company does not have to bear any related costs.
Of course, with larger players beginning to show interest, Netflix will face incremental competitive pressures from Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. (GOOG), as well as from cable operators.
Additionally, Movie gallery Inc. and Red Box, the kiosk company owned by Coinstar Inc. (CSTR), are also posing stiff competition for Netflix.
Moreover, with Netflix concentrating on overseas ventures and content additions, cost escalation in the form of license and renewal fees, as well as necessary technology investments would be a headwind going forward. This would pressurize margins, unless the average monthly revenue per paid subscriber increases.
Thus, we have a Neutral recommendation on Netflix shares in the long term.
We currently have a Zacks #3 Rank for Netflix Inc., which translates into a Hold rating in the short term.
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