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Netflix’s International Streaming Business in Fiscal 1Q16

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Netflix is now available in 190 countries

Netflix (NFLX) has expanded its reach outside the United States. It’s now available in 190 countries. It’s not available in China (FXI), North Korea, or Syria since the US government restricts American companies from operating in these countries.

However, as Netflix expands into more international territories, there are some challenges it may face. It will be interesting to see how Netflix has performed internationally when the company announces its earnings.

As the graph below shows, Netflix had total international streaming memberships of 30.0 million in 4Q15, with net additions of 4 million members. The company expects total international memberships to be 34.4 million in fiscal 1Q16.

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Impact of currency fluctuations could be less than expected for Netflix

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 spend on content in 1Q16.

It’s important to note that Netflix doesn’t use derivatives to hedge itself against exchange rate fluctuations. The company pays content licensing fees in local currencies in various geographic areas. However, the reason it expects to be more susceptible to exchange rate fluctuations is because it’s increasingly looking at content streaming rights on a global basis.

It’s interesting to note that the PowerShares DB US Dollar Bullish ETF (UUP), which tracks the US dollar, has fallen 4.5% in the past three months. As a result, the impact of currency fluctuations on the company’s contribution loss could be less than expected in fiscal 1Q16.

Currency fluctuations are also expected to affect other media companies. Twenty-First Century Fox (FOXA) expects its EBITDA (earnings before interest, taxes, depreciation, and amortization) for fiscal 2016 to be negatively impacted by about $350 million due to exchange rate fluctuations. News Corp (NWSA) and Discovery Communications (DISCA) were also negatively affected by currency fluctuations in 4Q15 by $141 million and 8%, respectively.

Twenty-First Century Fox makes up 0.62% of the PowerShares QQQ ETF (QQQ). QQQ holds 4.7% in television and radio.

In the next part of our series, we’ll see how analysts are rating Netflix.

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