While many consumers may think that Netflix is at the top of their game with the majority of Americans having access to a Netflix account in some way or another, analysts and investors have been looking at the streaming giant through a more critical lens. Industry professionals, while impressed with Netflix’s success in America, understand that the real test for the company will stem from international success.
Now that Netflix is a publicly traded company, their success is being closely watched. Many investors expressed concerns about whether Netflix was up to the challenge of international expansion. So far, Netflix has proven them wrong, boasting a third more new subscribers in the final quarter of 2016 than they projected. This success sent their shares skyrocketing up by 8%.
Netflix reported that they added 5.1 million new international customers in the last quarter of 2016, and projects an additional 3.7 million to sign up during the first quarter of 2017. In addition to the international growth, Netflix grew there once-stagnant U.S. subscriber base by 1.9 million last quarter and project continued growth of about 1.5 million in this first quarter of 2017. Analysts had predicted 3.73 additional international subscribers and 1.44 million domestic ones. Their unexpected success is what brought such a massive boost to their share value.
While millions of new subscribers is incredibly exciting for Netflix, the most important piece of information for Netflix’s future success is the fact that they project their international business operations to become profitable for the first time in early 2017.
Continued subscriber growth and profitable international operations are crucial to the success of Netflix moving forward. As a publically traded company, Netflix’s shares trade on a large premium to their current earnings based on projected future subscriber growth. If Netflix can’t deliver on their projections, investors will watch their share value plummet in real time. Essentially, Netflix’s subscribers must grow and their international operations must be profitable for the value of the shares to be justified.
Netflix is making all the right moves to become an international player; they even announced that they plan on releasing 10,000 hours of original content in 2017. However, its success is still hinged on subscriber growth. Netflix has big goals, but if they continue to meet or exceed them shareholders can expect to see their value continue to rise.