Netflix, Inc. was the top tech stock in 2015 when it took the lead as the best performing stock in the S&P 500. Its share price surged by almost 140% last year and many folks on the bearish side thought that Netflix might not be able to repeat the feat. In fact, it was said that the firm would need to beat massive odds to repeat its 2015 success. However, it seems that Netflix is not slowing down as it announced a move that will set the tone for 2016.
During CES 2016, Netflix’s CEO Reed Hastings, revealed that Netflix is now live in 130 new countries as the firm puts final touches on its global push. Netflix has been pushing for a slow and steady growth into new countries in the last couple of years – the slow and steady growth has given the firm more than 70 million users in 60 countries. Hence, nobody had the slightest inkling that the firm would jump from being present in 60 countries to 190 countries.
Here’s the good news for Netflix investors
Netflix investors will be pleased with the aggressive growth plan that the firm has employed in jumping to 130 new countries. User growth in the U.S. has been slowing down partly because content is available through many media and partly because strong rivals have entered the SVOD market.
Rivals such as Hulu, Amazon Prime, and HBO are fast on Netflix’s heel and they are sure to follow Netflix into global markets if it stuck with its previous plan of adding one new country at a time. The massive launch across 130 countries makes it hard for rivals create a quick plan for catching up.
Netflix has added key high-growth markets such as India, Indonesia and Russia. Netflix should see a huge growth in user numbers and a marked increase in its ARPU in the coming quarters. Netflix was unable to add China (it hopes to do so in the future) – its previous plan to work a deal with Alibaba didn’t work out. Yet, Netflix might be better off without China at this time because of the massive level of piracy and disregard for copyrights.
Netflix’s presence in 190 countries, the quality of its content, and the potential for a massive user-base (running into 1 billion users in the next couple of years) could also help the firm launch into new products. Netflix is working on creating its own content with features. The firm might want create hardware to support its platform. Users in most of these new markets can only pay for the service via debits or credit cards alone – the market won’t be surprised if Netflix launches a payment system sometime in the future.
Netflix’s might see some headwinds ahead
Netflix quick growth into new countries is a great move; yet, some analysts think that it might lead the stock into strong headwinds. Analysts at Baird & Co. in a research note talked about some of the headwinds that firm might face.
One challenge is an increase in content costs, as Netflix now needs to strike deal with TV networks in 190 countries. TV Networks and cable firms in the U.S. have started launching their own streaming services; hence, they are not playing nice and Netflix is being forced to start creating its own shows. If a similar script plays out in the other countries, the firm might find itself in troubled waters as it tries to create shows for an impatient and easily distracted user base.