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Can Netflix Meet Its Domestic Outlook in Q3 2018?

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Oct. 12 2018, Updated 8:01 a.m. ET

Domestic Revenue segment’s guidance and catalysts

Netflix’s (NFLX) Domestic Revenue segment, which contributes ~51.0% to its overall revenues, has generated double-digit growth in the trailing five quarters. The company expects its third-quarter domestic revenues to reach ~$1.9 billion, reflecting nearly 24.8% YoY (year-over-year) growth.

The graph above illustrates the growth of Netflix’s Domestic Revenue segment in the last five quarters. The segment’s revenues during the period grew at a CAGR (compound annual growth rate) of 5.5%. In the second quarter, the company’s domestic revenues came in at ~$1.8 billion, up 23.8% YoY.

Netflix (NFLX) has been boosting its content portfolio through extensive investment in original content. Its original English-language content such as Stranger Things, The Crown, and Altered Carbon are drawing huge subscriber numbers. 

In the second quarter, Netflix added 0.67 million net subscribers. Its partnership with Disney’s (DIS) Marvel Group has helped the company release several hit shows based on Marvel characters such as the Daredevil, the Defenders, and the Punisher.

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Domestic subscriber guidance

Netflix (NFLX) expects its total domestic paid membership to reach 56.6 million in the third quarter. This reflects 0.7 million subscriber additions in the third quarter. In the third quarter of 2017, Netflix added ~0.85 million subscribers. In the second quarter, the company missed its net subscriber addition outlook.

Established video streaming operators Hulu and Amazon Prime (AMZN) have subscription fees of around $8 per month, which is close to Netflix’s monthly fee. This competition may pressure Netflix’s domestic subscriber growth.

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