Netflix Inc.

Netflix

Written by Ophir Gottlieb, 01-14-2016

PREFACE
In real time at the Consumer Electronics Show (CES), Netflix CEO Reed Hastings announced significantly expanded reach to 190 countries, making its Internet TV service available in 130 new markets including India -- but not China. "Today you are witnessing the birth of a new global Internet TV network."


Here's a great chart from Statsita that demonstrates the Netflix reach as of right now:



The bright green areas are the newest additions to the Netflix family of nations. Netflix has become a colossal success because it has broken all of technology as a distributor, forever changing the way we watch TV and movies. It has won the war, and fended off some very powerful companies to do so, making them look foolish in the process.

But, Netflix is now relying more on original (exclusive) content than it used to as it has been dropping a substantial amount of other content. That allows for a new revenue source on the one hand (syndication of original content), but also means a totally new business line.

BREAKING
But, we also just learned something unbelievable about Netflix's original content. The company earned more golden globe nominations than any other network.



This is not just astonishing, it means that the company's conversion from content distributor to content creator and distributor is working on a scale simply no one in the world (even Netflix) could have imagined.

IMPACT
A content distributor without original content has a tenuous relationship with content providers. On the one hand Netflix has literally saved TV shows that were well on their way off air until binge streaming took hold.

But, those same content creators didn't like that reliance and have started to create their own outlets to bypass Netflix.

But now that Netflix has created high demand, high quality original content, my goodness, it has turned into its very own border-less cable bundler. And, the more subscribers it gets due to its own content, means the greater power it holds over the other content providers -- more eyeballs means more power, period.

Here's a chart of the company's all-time revenue chart:



But the upcoming international expansion has enormous risk.

RISK
We will see great growth internationally for the next few quarters, but make no mistake, Netflix may be going through the largest pivot any large cap tech firm has gone through in a decade and the implications are huge.

The company is going to need a billion dollars a year for the next couple of years to reach its expansion goals internationally. Netflix is betting the house on this expansion. Look what happens to that revenue chart when we add cash from operations in the orange line:



The incredible divergence between revenue and cash from operations means Netflix is going to have to go to the market for some more debt. Here's how that trend looks as of today, and CEO Hastings clearly said that Netflix may have to go out and borrow more.



Debt now sits over $2.4 billion and should rise well over $3.5 billion in the near-term.

THE STAKES
Netflix is attempting to be the only global all-in-one content provider this planet has ever seen, and whether valuations feel stretched or not, a $50 billion market cap pales in comparison to what this company would be worth if successful. Yes, I'm saying that the price today is low if Netflix is successful.

But, that is a big "if."

All of the focus should be on the success of this incredible expansion and ambitious endeavour. The revenue streams Netflix will produce from higher subscribers will be substantially expanded with revenue from original content licensing and syndication.

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