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Exploring NFLX’s Domestic Streaming Business ahead of Q4 Results

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Jan. 15 2019, Updated 3:30 p.m. ET

Netflix’s domestic streaming business

Netflix (NFLX) expects revenue of $1.9 billion, a rise of 22% YoY (year-over-year), in the United States (SPY) in the fourth quarter. The company expects a domestic contribution margin of 33.2% in the quarter. It expects its total memberships to be 60.3 million and its net additions to be 1.8 million in the United States in the period. The company expects a sequential increase of only 3% in its domestic memberships.

Now let’s look at the factors that are helping Netflix edge out its rivals in the US (SPY) market.

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Netflix’s rise in the US market

Original content has been the key factor leading to Netflix’s rise in the domestic streaming market. The company is focusing on the length and breadth of original programming, which includes original movies, shows, and unscripted programming across different genres that cater to different audience tastes.

However, the company has stayed away from streaming live sports, as it believes that sports programming doesn’t lend itself easily to the on-demand viewing format.

The company is also trying to improve its reach in domestic markets by bundling its application with third-party pay-TV distributors, such as Comcast (CMCSA) with its X1 set-top box. This endeavor has resulted in accelerated net additions for the company in the US market.

However, Netflix is also facing rising competition from Amazon’s (AMZN) Prime Video service and Hulu. While Amazon is also concentrating on original programming for Prime, Hulu hit the 25 million subscriber mark in 2018. According to CNBC, Hulu added 8 million subscribers to its service last year, and it expects to grow even more this year. Hulu is owned by 21st Century Fox (FOXA), Comcast, and AT&T (T).

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