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Netflix Will Expand in Europe in October 2015

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Aggressive expansion strategy

In the last part of this series, we explained how Netflix (NFLX) is looking to aggressively expand in international markets. Earlier this year, Netflix announced that it would be launching services in Italy, Spain, and Portugal in October 2015. Netflix launched operations in other European countries like Germany, France, Switzerland, Luxembourg, Belgium, and Austria in September 2014. It provides access to over 66 million broadband households.

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In terms of potential customers, the three countries have a total population of 120 million. Netflix has a target audience of 20 million households with an Internet speed of 4 Mbps (megabits per second) or above. Netflix is also looking to localize content through dubbing or adding subtitles that will eradicate language barriers in these countries. While the pay-TV penetration is 84% in the US, the figure is ~25% in Spain and Italy. This is a scenario that might benefit Netflix in the long run.

Impact on revenue and profits

Netflix’s expansion will impact the firm’s revenue and contribution margins. In March 2015, it launched in Australia and New Zealand. It’s also looking to enter countries like Japan, China, and India. International markets have seen robust growth. Subscriptions grew from 2 million in 2011 to 21 million in March 2015. Although the firm’s international operations aren’t profitable yet, Netflix continues to invest heavily in the same. The company has stated that it will complete the global expansion by the end of 2017. Amazon (AMZN) and Dish Network (DISH) are looking to expand and diversify into various segments in the near future.

You can get diversified exposure to Netflix by investing in the First Trust ISE Cloud Computing Index Fund (SKYY) ETF and the PowerShares QQQ Trust Series 1 ETF (QQQ). They hold 3.55% and 0.86% of the stock.

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