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What Factors Have Impacted Netflix’s Subscriber Growth?

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Netflix’s domestic streaming business

Netflix (NFLX) expects revenues of $1.2 billion in 1Q16 with a contribution profit of $416 million and a contribution margin of 36%. The company expects total memberships in the United States to reach 46.5 million and net additions to reach 1.8 million during the quarter.

Netflix announced its 4Q15 and 2015 results on January 19, 2016. The company recorded domestic streaming revenues of $1.1 billion in 4Q15 with a contribution profit of $379 million.

Netflix recorded total domestic streaming memberships of 44.7 million and net additions of 1.6 million members in the United States in 4Q15. Netflix’s total net additions for 4Q15 fell by 0.34 million from 4Q14.

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Netflix stated in its 4Q15 earnings letter to shareholders that since the company already has high penetration in the United States, it’s struggling to make further headway in the country. It also remarked that the “new credit/debit card rollover continues to be a background issue” for lower net additions.

Netflix believes that the breadth of its original programming will be the key to drawing viewers to its service.

International streaming business

Netflix expects revenues of $653 million with a contribution loss of $114 million in 1Q16. The company has stated that its contribution loss could also be impacted by foreign currency exchange rate fluctuations and its spending on content in 1Q16.

Other companies in the media sector who have been affected by foreign currency exchange fluctuations this earnings season include 21st Century Fox (FOXA), Discovery Communications (DISCA), and News Corp (NWSA). Netflix recorded international streaming revenues of $566 million in 4Q15.

As the chart above indicates, Netflix’s contribution losses continued, reaching $109 million in 4Q15. Netflix had total international memberships of 30.0 million in 4Q15 with net additions of 4 million members. The company’s total international memberships and net additions exceeded its internal forecasts of 29.5 million and 3.5 million, respectively.

21st Century Fox makes up 0.68% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ has 4.8% exposure to the television and radio sector.

In the last part of this series, we will look at how the pay-TV industry is also gearing up for HDR technology.

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