Netflix Inc (NFLX) and Sweden’s pay television service, Com Hem recently entered into a partnership, which will enable Com Hem subscribers to access the former’s video streaming services throughTiVo (TIVO) set-top boxes beginning December.
This is Netflix’s second partnership with a European cable service provider within a short span. Earlier this month, Netflix signed a deal with Virgin Media to offer its streaming services to U.K. subscribers through TiVo set-top boxes.
Com Hem’s strong video subscriber base (more than 605K) is expected to boost Netflix’s customer base. We believe that Netflix will continue to pursue such partnerships with cable providers in other European countries to expand its reach and customer base.
Apart from Sweden and the United Kingdom, Netflix is aggressively expanding into other international markets such as Brazil, Denmark, Mexico and Canada. Recently, the company entered Netherlands, which is further expected to boost its business opportunities going forward.
Meanwhile, Netflix is also hoping for similar deals with some U.S. cable providers as the company targets more subscribers. Netflix wants to make it easy for the end consumer and is expected to be available via the existing devices at subscriber homes.
These deals will help Netflix to boost its competitive position against the likes of Amazon (AMZN), HBO and other cable operators such as Comcast (CMCSK), who are venturing into the streaming business.
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 expansion 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.
Netflix has a Zacks Rank #3 (Hold).
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