NFLX – International Growth Means Netflix Stock Has Big Upside

And a few domestic accomplishments help sweeten the bull case

   
NFLX – International Growth Means Netflix Stock Has Big Upside

Netflix (NFLX) is up a bit today on news that the streaming video giant plans to launch in six more European countries this year.

Netflix NFLX   International Growth Means Netflix Stock Has Big UpsideIt’s the latest pop for NFLX stock, driving 12-month returns for the stock above 60% and pushing Netflix to a more than 3% gain YTD despite a small decline for the major stock market indices.

But should investors trust NFLX to continue this outperformance, and is the ambitious expansion into Europe really a wise move for the company?

My answer is “yes” on both fronts. And here’s why:

NFLX Growing Briskly Abroad

This recent push into Europe is hardly anything new for Netflix stock. Consider the following figures:

  • According to Netflix financials, At the end of 2011, NFLX had 1.4 million paid international subscribers and generated $82.9 million in international streaming revenue.
  • At the end of 2012, NFLX had 4.9 million international subscribers and generated $287.5 million in revenue.
  • At the end of 2013, NFLX had 9.7 million international subscribers and generated $712.4 million in revenue.

That’s nearly 600% user growth — and most importantly, an even more impressive 760% in revenue growth.

Detractors will point out that the total operating loss has also grown, from roughly $103.1 million in 2011 to a loss of $274.3 million last year on the international streaming business. However, NFLX has shown no sign of slowing growth, and the fact that revenue is growing at an even faster rate than sign-ups is encouraging.

News like today’s report that Netflix is accelerating its expansion plans bode well for the company.

It’s Not Just the International Story

The international opportunity is substantial, even if risky. But it’s by far the only thing going for NFLX stock holders right now.

As Carlos Kirjner of Bernstein Research put it recently in a note on Netflix, there are three bull cases for the stock:

  • “One posits that Netflix will capture 60M or 70M and sometimes even more US households” despite current broadband infrastructure limitations in many regions of the country.
  • The second bull case for NFLX involves “a material price increase with no impact on the user growth trajectory.”
  • The third bull case is “the international opportunity, sometimes cast as ‘hundreds of millions of households.’”

In other words, even if the international opportunity doesn’t pan out, there are other paths to growth — either through increased penetration in the U.S. or via NFLX simply raising the amount it charges subscribers.

And both of those alternatives actually are happening right now alongside the overseas push.

Regarding domestic penetration and broadband limitations, Netflix has been forging deals with small cable operations including Atlantic Broadband, Grande Communications and RCN to bring its streaming service into customers’ households via a set-top box. This is an end-around solution to problems with internet connectivity, instead relying on the infrastructure of cable TV service as the pipeline for content.

And regarding price, on the heels of a similar price increase by Amazon (AMZN) for its Amazon Prime membership in April, Netflix announced plans to increase the price of its streaming service to new subscribers.

If you believe Kirjner’s position that there are three bull cases for Netflix, then it is extremely encouraging to see meaningful progress on all three fronts concurrently.

Bottom Line

I’ll admit that I’m more excited about the global growth story of NFLX than the domestic potential or the risky idea of gouging loyal subs for more cash.

But any way you slice it, Netflix stock has plenty of opportunity for continued expansion … and so does NFLX as a result.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP


Article printed from InvestorPlace Media, http://investorplace.com/2014/05/nflx-netflix-stock-international-streaming-subscribers/.

©2014 InvestorPlace Media, LLC

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