Netflix Gains on Plan to Expand in Latin America, Caribbean
Netflix Inc. (NFLX), the DVD rental and film-streaming service, rose the most in more than five months in Nasdaq Stock Market trading after announcing plans to expand in Latin America and the Caribbean.
Netflix surged $21.64, or 8.1 percent, to $289.63 at 4 p.m. New York time, the biggest gain since Jan. 27. Shares of the Los Gatos, California-based company have added 65 percent this year.
Netflix will begin streaming video in 43 countries in the region this year, including Mexico, according to a statement today. The company needs to expand globally for continued growth and to generate funds for additional film rights.
“This announcement significantly expands Netflix’s total addressable market in Latin America and likely makes our ending subscriber estimates for 2012 of 42.7 million somewhat conservative,” Anthony J. DiClemente, an analyst with Barclays Capital in New York, wrote today in a research note. He has an “overweight” rating on the shares.
Through 2015, Latin America will have the fastest growth in the broadband connections that are required for online movie services such as Netflix, according to a November 2010 report by consulting firm Analysys Mason in London.
The countries offer Netflix potential access to 325 million households, according to George Askew, an analyst with Stifel Nicolaus & Co. in Washington who rates the stock “hold.” The service will be offered in Spanish, Portuguese or English, Netflix said.
Analysts have expressed concern over rising content costs at Netflix, including the potential price to renew a streaming accord with Liberty Media Corp.’s Starz cable networks. The existing Starz accord costs about $25 million a year, Rich Greenfield, an analyst with, BTIG LLC, estimated in January.
On June 1, Chief Executive Officer Reed Hastings said it “wouldn’t be shocking” to pay as much as $300 million a year to renew that agreement.
“We acknowledge investor concern around rising content costs, but we believe viral subscriber growth, international expansion and disciplined content acquisition mitigate this risk,” wrote DiClemente.
Netflix subscribers in the U.S. and Canada pay $7.99 a month to watch television shows and movies via the Internet. Some plans allow customers to receive DVDs in the mail. Netflix began allowing U.S. customers to watch videos online in 2007 and started offering the option in Canada last year.
As of March 31, 97 percent of its customers were located in the U.S., according to data compiled by Bloomberg.
The company is expanding into many countries at once to get the scale necessary to pay Hollywood studios and other content providers for streaming rights to older movies and television shows, Tony Wible, an analyst with Janney Montgomery Scott, said in an interview.
To sustain 30 percent growth, Netflix will need to reach 59 million subscribers globally by the end of 2013, up from more than 23 million today, said Wible, who has a “sell” rating on the stock.
“To hit that benchmark, you’d have to have 53 million in the U.S. and about 6 million internationally,” Wible said.
Netflix said on April 26 its push outside the U.S. will lead to international operating losses of as much as $70 million in the second half, up from $50 million seen earlier.
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