As announced earlier, Netflix Inc (NFLX) recently started its service in the Netherlands. The company is offering its streaming services for a monthly subscription charge of €7.99. The start of operations in Netherlands is Netflix’s first expansion activity in 2013.
Netflix started its international operations by entering Canada in 2010 and then expanded to Latin America in 2011 and the U.K., Ireland, Finland, Denmark, Sweden and Norway last year. Netherlands is the 41st country where Netflix will be offering its services.
The Netherlands expansion might prove to be a prudent idea for Netflix as approximately 80% of households have access to high-speed Internet, according to records maintained by the Organization for Economic Cooperation and Development.
Nonetheless, there is no dearth of competition among video-on-demand service providers in the region. Cable operators such as UPC, Royal KPN NV’s Web-enabled TV service, HBO and Film1 already have their operations in the region.
Although international expansions are the key to Netflix’s growth story, increasing investments are expected to hurt profitability in the near term. At the same time, it is noteworthy that in the recently concluded second quarter of 2013, revenues from international operations soared 155.3% from the year-ago quarter.
We believe that Netflix will continue to pursue expansionary opportunities in other regions of Europe. However, starting operations in a new country demands huge investments and considerably increases marketing and general and administrative expenses. These are expected to keep margins under pressure during the investment phase.
Nonetheless, Netflix remains a force to reckon with in the streaming market. We believe that Netflix’s improving content portfolio and international expansion are noteworthy. We expect Netflix to witness improved sales as subscribers are taking note of its diversified portfolio.
Moreover, the recent licensing deals with the likes of DreamWorks (DWA), CBS Corp (CBS), and AMC will provide Netflix a competitive edge over Amazon (AMZN) and HBO.
Currently, Netflix carries a Zacks Rank #3 (Hold).
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