International streaming memberships
In the previous part of this series, we looked at Netflix’s (NFLX) focus on expansion in international markets. In this part of the series, we’ll look at whether Netflix can succeed internationally.
Netflix expects to increase its International streaming memberships significantly as it forays into international markets. As the above graph shows, Netflix expects total memberships in its International streaming segment to be 25.6 million in 3Q15, according to the company’s internal forecasts. This is a steep increase of ~62% over its International streaming memberships of ~16 million in 3Q14.
Factors that could affect Netflix’s international expansion
Many factors could affect Netflix’s fiscal performance in the International streaming segment. Even after incurring significant costs of content acquisition for international markets, Netflix has always maintained that it’s going to bring the price of its service overseas closer to its price in US markets. The price per month of Netflix’s streaming service in international markets ranges from $6–$19 per month. In the United States, Netflix’s streaming service under its various plans is priced at an average of $10 per month.
Adverse foreign exchange rate fluctuations (UUP) could impact Netflix’s revenues in its International streaming segment. Another issue that could affect revenues in the long term is video piracy. For example, Netflix is planning a modest investment in China (FXI) and plans to launch a new service there next year. Video piracy is a potential problem in Chinese markets, and consumers of Netflix’s original content could stream it for free instead of paying for it.
Netflix is also facing increasing competition internationally from both local and global players in the over-the-top, or OTT, market. For example, Amazon (AMZN) also plans to enter the Japanese market. It remains to be seen how Netflix rides the increasing competition in overseas markets.
You can get a diversified exposure to Netflix by investing in the PowerShares QQQ Trust Series 1 ETF (QQQ), which holds 0.9% of the stock. QQQ also holds 12.7% of Apple (AAPL), and 7.3% of Microsoft (MSFT).