Netflix, Inc. (NASDAQ:NFLX) recently announced that it is casting Jennifer Aniston and American stand-up comedian Tig Notaro in a same-sex White House comedy film.
Notably, Aniston is reportedly working with Adam Sandler in Netflix’s new comedy show Murder Mystery. The company is also rumored to adapt Michael Lewis’ 2014 non-fiction book, Flash Boys, for a film.
Netflix’s focus on producing original content and quality shows featuring popular stars is major reason behind the popularity of its shows. The whopping budget that supports the solid star cast as well as the higher production values definitely make the shows and films more attractive.
Apart from the star value, the varied theme (sometimes bold) of the shows also attracts subscribers. This is evident from the company’s decision to produce the same-sex movie, where Jennifer Aniston is supposed to play the first gay U.S. President, per Reuters.
These are the factors behind Netflix’s scintillating run to date. Shares have returned 71.1% on a year-to-date basis, significantly outperforming the industry’s rally of 19.7%.
Spending Spree to Boost Original Content
Netflix is now set to spend 85% of total spending on original contents. Notably, the company is expected to spend $8 billion in 2018, which is anticipated to increase further to $12.2 billion in 2020.
The solid budget helps the company fight intensifying competition in the streaming market from the likes of HBO, Amazon.com, Inc. (NASDAQ:AMZN) Prime, Apple Inc. (NASDAQ:AAPL) and Hulu.
Although Hulu is expected spend lesser than Netflix on original content, it has an enviable content pipeline supported by its parents — Comcast Corporation’s (NASDAQ:CMCSA) NBCUniversal, Walt Disney Co‘s (NYSE:DIS) ABC, Twenty-First Century Fox Inc (NASDAQ:FOXA) as well as HBO and CNN owner Time Warner Inc (NYSE:TWX), which has a minority share (10%).
Moreover, Apple has reportedly outspent Facebook and YouTube to acquire original programming. The iPhone maker is now anticipated to launch its original shows as early as March 2019. Amazon is also expected to spend $5 billion this year on original content per JPMorgan.
Netflix is set to release 470 originals by 2018, which will take the total count for the year to nearly 1,000. Moreover, the company is now set to release 86 original movies in 2018 as compared with 61 released in 2017.
Of this 17 films will be in languages other than English, including French, Arabic, Hungarian, Japanese, Russian and Spanish, according to Reuters.
Regional Focus to Drive International Subscriber Base
Moreover, Netflix’s focus on international expansion and original regional content is paying off, with international subscribers outnumbering the domestic ones.
In the last reported quarter, the company added 7.41 million subscribers (1.96 in domestic market and 5.46 in international), much more than the expected 6.35 million. Netflix’s aggressive expansion into the international markets has been beneficial, with the company generating 48% of revenues from this segment.
Netflix, Inc. Revenue (TTM)
Netflix now has 125 million subscribers globally. Per Bank of America Merrill Lynch analyst, as quoted by CNB, “the company’s subscriber base can grow 8% annually through 2030 to 360 million members.”
We believe expanding original regional content to be a key catalyst. The company plans to release 30 international original series in 2018, including programs from France, Poland, India, Korea and Japan.
Netflix’s first original series from Brazil, 3%, is up for a new season. A new original series from Denmark, The Rain, is also in the pipeline.
Moreover, Netflix is producing original local series in Australia, South Korea and India. These will continue to boost international subscriber base, which will eventually drive top-line growth in the long haul.
Zacks Rank & Key Pick
Netflix carries a Zacks Rank #3 (Hold). Discovery Communications Inc. (NASDAQ:DISCA) with Zacks Rank #2 (Buy) is a better-ranked stock in the same sector. Long-term earnings growth rate for Discovery is currently pegged at 14.69%.
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