Netflix on the verge of hitting 100 million subscribers.
BUT RAPID INTERNATIONAL EXPANSION DAMPENS PROFITS
SAN FRANCISCO• Netflix Inc. is on the verge of surpassing 100 million global subscribers, a testament to how much the video streaming service has changed the entertainment landscape since its debut a decade ago.
The company will reach that milestone this weekend if its projections are correct. Netflix made the prediction Monday with the release of its first-quarter earnings.
The service added nearly 5 million subscribers during the first three months of the year, and will end March with 98.7 million customers in roughly 190 countries.
Over the past decade, “what really did it for Netflix was the explosion of phones and tablets that allowed people to watch video everywhere,” said Wedbush Securities analyst Michael Pachter. “But Netflix clearly had a vision before those devices became so ubiquitous.”
About 51 million of Netflix’s subscribers are in the U. S. By the end of this year, Piper Jaffray analyst Michael Olson expects the majority of the company’s subscribers to be overseas. Netflix ended March with nearly 48 million subscribers outside the U.S.
Netflix CEO Reed Hastings called the 100- million subscriber mark “a good start” in a letter reviewing the company’s first- quarter results.
The understated reaction reflects Hastings’ ambition to build the world’s largest video channel. The company’s progress t oward reaching that goal has helped drive Netflix’s stock price progressively higher during the past five years, a stretch that has seen the video service add 72 million more subscribers.
Netflix c urrently has a market value of about US$ 63 billion. Its stock rose US$ 1.67 to US$ 148.92 in Monday’s extended trading, even though subscriber growth during the first quarter came in slightly below management forecasts.
For all its success, Netflix still has a ways to go to catch up with HBO, the popular pay-TV channel that has served as its role model. HBO has 134 million subscribers worldwide, including viewers paying for an Internet- only version of the channel that was inspired by Netflix’s success.
Other cable channels also are offering Internet- only options as more viewers, especially younger people, es chew traditional TV packages and subscribe to streaming services instead.
The trend has confronted Netflix with more competition in the battle for household entertainment budgets. Netflix so far has answered the challenge by spending heavily on original shows such as Stranger Things and House of Cards and selling its service at a relatively low price.
Netflix’s subscriptions range from US$ 8 to US$ 12 per month, with the most popular option at US$10.
“The model works from a consumer perspective because it is such a good value,” Pachter said.
But Pachter and other analysts wonder how long Netflix will be able to hold the line on price as its programming costs rise in tandem with its appeal to a more diverse international audience.
Movie and TV studios typically also demand more money as more people subscribe to channels to in an effort to make as much as possible off their content.
As it is, Netflix expects to spend about US$6 billion on programming this year.
Netflix hasn’t given any inkling it will raise prices again.
It lost some longtime U. S. subscribers after their rates went up by as much as US$2 per month last year. Netflix had previously frozen prices for millions of subscribers at 2014 levels.
But if it wants to keep investors happy, the company will eventually have to improve its relatively low profit margin. The Los Gatos, Calif., company earned US$ 178 million on revenue of US$ 2.6 billion in the first quarter.
Analysts predict Netflix will make US$482 million on revenue of more than US$11 billion for the entire year.
A costly international expansion has depressed Netflix’s profits.
Netflix had pil ed up US$ 1.5 billion in operating losses on its international operations until the first quarter, when its streaming service outside the U. S. posted an operating profit of US$43 million.
But the company expects to lose another US$ 28 million internationally in the current quarter.
THE MODEL WORKS ... BECAUSE IT IS SUCH A GOOD VALUE.