Netflix in China: A Huge Opportunity for NFLX Stock

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Netflix, Inc. (NASDAQ:NFLX) has plans to enter the lucrative Chinese market by the end of 2016, according to Bloomberg. NFLX stock is up more 5% in early morning trading on the news — and for good reason.

netflix china huge opportunity for nflx stockChina’s streaming video market is estimated to be worth about $5.9 billion, or $400 million more than Netflix’s full-year 2014 revenue.

Wall Street knows Netflix can execute when it comes to international expansion, as shown by its remarkable 64% increase in overseas Netflix members in the first quarter. Those numbers were phenomenal, and NFLX stock shot up 12% upon their release.

But the Netflix China opportunity is a whole different animal.

NFLX Growth: No End In Sight

Bloomberg reports that Netflix is in talks to partner with Wasu Media Holding Co., a Chinese cable company of which Jack Ma holds a 20% stake. Jack Ma, of course, is the billionaire founder of Alibaba Group Holding Ltd (NYSE:BABA), and Wasu and Alibaba have been working jointly on a set-top box since 2013.

With China’s online video market expected to almost triple by 2018, NFLX stock is putting itself in a position to grow with the market — and what shareholder wouldn’t want that?

Granted, it’s not easy for companies outside of China to infiltrate that market. China’s got this whole “censorship” thing going on, and they take it pretty seriously.

Google Inc (NASDAQ:GOOGGOOGL), Twitter Inc (NYSE:TWTR), and Facebook Inc (NASDAQ:FB) each are banned in China, so if NFLX successfully tapped into the country of 1.4 billion people it would be the envy of Silicon Valley.

To do so, NFLX will need to find a partner with government-issued licenses for Internet video. China has granted only seven companies those rights, and Wasu is one of them.

Of course, NFLX could always just buy one of those companies, too. Netflix doesn’t care how it happens, it just wants in. Netflix Chief Content Officer Ted Sarandos matter-of-factly said just that on Friday:

“We are also aware that there are unique operating models we’ve not worked in before, we’ve not acquired companies, we’ve not worked with partners before in any of our territories, but if that’s the cost of doing business in China we will figure that out.”

I believe him.

Netflix’s international members made up 26% of its overall membership in the first quarter of 2014, rising to 33% in the most recent quarter. Although I don’t see the U.S. market as totally saturated, it’s clear the huge opportunities lie overseas.

I wouldn’t be surprised to see another round of analysts upgrading NFLX stock over the coming week, although sentiment is pretty bullish already; FBR Capital sees NFLX soaring to $900 per share — 50% higher than its stock price today.

Don’t rule it out.

As of this writing John Divine owned shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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