According to a recent report by market research firm IHS Markit, Netflix will reach 100 million streaming video subscribers by 2018 and, in the subsequent two years, its international subscribers will overtake the number of subscribers in the U.S. The firm estimates that by 2020 Netflix will have 75 million international subscribers. While our estimates for Netflix expect refelct similar growth in international markets, this segment accounts for only 30% of the company’s valuation according to our projections. We expect Netflix’s international segment will be profitable by 2018, but we do not expect these margins to reach the domestic contribution margin levels till the end of our forecast period. A lack of operating leverage, and huge content and marketing costs, will keep international margins lower for the immediate future. And while this segment holds strong growth potential for the company over the long term, the domestic market will drive Netflix’s profitability over the next five years, in our view. Once the company is able to establish itself firmly in international markets and address challenges of low bandwidth and lack of quality content, this segment can be highly profitable in the long term.
|