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Can Netflix Maintain Its Domestic Subscriber Growth in Q2 2018?

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Net subscriber addition outlook

Netflix (NFLX) has projected around 1.2 million net subscriber additions in the second quarter, driven by strong original content. Netflix’s membership growth is expected to benefit from the launch of high-budget original films such as Bright.

The video streaming giant expects its total domestic membership to reach 57.9 million in the upcoming quarters, which reflects 11.6% YoY (year-over-year) growth. In the last four quarters, the company easily outpaced its guidance. In our view, the company can repeat this growth in the second quarter.

The chart above illustrates Netflix’s net subscriber growth in the last five quarters. During this period, the company’s membership rose at a CAGR (compound annual growth rate) of 8.4%.

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In the same period, the company reported average quarterly net customer additions of ~1.5 million. Its subscriber additions in the previous two quarters remained quite high. At the end of the second quarter, Netflix’s total domestic membership stood at 56.7 million compared with 50.9 million in the second quarter of 2017.

Overcrowded market

The domestic market comprises more than 45.0% of Netflix’s total membership. Netflix faces fierce competition from Amazon Prime (AMZN), which offers both video streaming and free delivery services for the same price. 

HBO’s (TWX) hugely popular Game of Thrones is slated to return in 2019 for the final six episodes of the series. HBO’s other original content includes Sharp Objects, starring Amy Adams, and Last Week Tonight with John Oliver. HBO’s high-budget lineup can be expected to pressure Netflix’s domestic membership growth. Netflix’s domestic subscriber growth has been decreasing due to these competitive threats and increased subscription rates.

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