Shares of Netflix, Inc. fell as much as 15% after the streaming company reported weak second quarter earnings. During the second quarter, the company saw a massive decline in subscriber growth, resulting in ratings downgrades from several analysts. The company’s shares have plummeted more than 18% year-to-date. The stock, however, has made a complete recovery during the past month. Since July, shares have gained nearly 11%.
Long-Term Prospects Look Promising
Netflix is an expensive stock, and investors appear to be worried about the pace of the company’s growth. They fear that the current growth rate isn’t enough to support the company’s high stock price and the $6 billion it will spend on content this year, according to a report published on Investopedia.com.
There has been significant insider buying at the streaming company in the past three months, during which some 900,000 shares were bought by insiders. On Monday, CEO Reed Hastings sold 102,340 shares of the company’s stock at $95.21 per share. Following the transaction, the Hastings owns 102,340 shares in the company.
On Wednesday, analysts at William Blair upgraded Netflix, Inc. from a “market perform” rating to an “outperform” rating.
A report from Guru Finance suggests that still there’s is a time to buy the stock, which has more upside to offer going forward. The company is growing rapidly, and international growth should push the stock higher. Overall, Netflix’s subscribers rose to 83.2 million from 65.6 million during the past 12 months.
Guru Finance reported (via Yahoo News) that the company’s longer-term prospects look promising. The management anticipates that its domestic member base will sooner or later peak between 60-90 million subscribers, indicating a surge of 47 million. The company’s international subscribers are rising at a good pace.
“Going forward, international growth will be key for Netflix and investors should keep a close watch on the company’s international prospects,” Guru Finance’s Naman Shukla writes.
Netflix Will Grow Outside US
For the third quarter, Netflix expects to add just 400,000 new paid subscribers in the United States and 2.1 million internationally. A new report suggests that a majority of the company’s subscribers will be international in the next two years. It’s global subscriber base will actually outpace U.S. subscribers by the year 2018. IHS Markit, a data analytics firm, said in a report that the streaming service’s total user count will be dominated by international users. By 2020, Netflix will have roughly 75 million international users. In that same year, its global revenues will exceed $13 billion, with more than half (53%) of that coming from international markets. The U.S. streaming market will generate $6.2 billion in revenues.
The online streaming service expanded to more than more than 130 new countries including India early this year. It has 81 million customers across 190 countries.
Netflix, Inc. recently announced that it will produce an original content for the Indian market. The streaming service’s first production, a crime drama series, is adaptation of the 2006 best-seller “Sacred Games” by Vikram Chandra. It will shot on location in India and produced by Phantom Films, a local production company.
The streaming giant is looking for ways to enter the China market. The company’s Chief Content Officer Ted Sarandos believes that the company can break into the complex Chinese market without a local partner.
During the past 30 days, the stock’s has gained 10.82%. The expansion into international markets escpially in China will be key for Netflix and it may push the stock to much higher levels.
Disclosure: I don’t hold a position in Netflix.