Netflix Inc.

The Future

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PREFACE
Netflix Inc. (NASDAQ:NFLX) stock is down more than 20% from its highs but the future is still bright, regardless of the recent stock drop.


CASHFLOW
Before we get to the recently announced news, we can look at the risk inherent in Netflix stock by focusing on cash from operations.



The cash burn must come into context with the company's enormous global expansion which just this year includes 130 countries, and India is one we want focus on.



The green filled areas represent countries added in 2016. For the final chart before we get to the breaking news, we can see Netflix Inc. (NASDAQ:NFLX) revenue chart below.



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STEP I.
First we need context into the company's success so far, and then we can turn to a huge move in India. Netflix has seen domestic growth slow and has turned its eye toward that rapid international expansion. In a recent report we noted the results of a Piper Jaffray report written by Michael Olson, where he reported positive survey results based on 1,000 Internet users in Brazil and 1,000 in Mexico. Netflix brand awareness and the intent to subscribe was quite high (BARRON'S).


Barron's also reported that UBS's Doug Michelson reviewed findings of his European colleague, Richard Eary, covering online media on the continent.


Mitchelson went on to say that "management continues to suggest that only about 20% of international viewing is from local content and that U.S. content continues to travel well everywhere, including in the rest of world markets launched this year."

This is critical because it means that Netflix can focus its spend on US based original content rather than a wild spend on various countries with no substantial estimate as to how each region would do.

STEP II: INDIA
We could go on and on about surveys from Europe as well that show how quickly Netflix adoption is taking place, but let's turn to the second largest country in the world by population, and the largest country for Netflix since China is a "no-go" for right now.

In an article from Fortune we just got this news:


While Netflix has been pouring money into original content in the United States, the move in India is a first. There are more than a quarter billion Internet users in the country and Netflix wants to reach them. India is famously known for Bollywood -- a wonderful community of film makers and story tellers that have entered the film making vernacular in the United States for quite some time.

This move is genius in that Netflix has limited resources pegged for non-English original content but it has chosen beautifully with India, the content itself and the launch.

COMPETITON IS FIERCE
Amazon.com (NASDAQ:AMZN) announced a few weeks ago that it has spun its SVOD service out of Amazon Prime as a stand-alone product and Alphabet (NASDAQ:GOOGL) has its YouTube Red service as a premium SVOD service with original content coming soon.

Even Facebook (NASDAQ:FB) announced a standalone SVOD product to compete with YouTube and Netflix and Apple (NASDAQ:AAPL) to has invested in original content for its Apple TV ecosystem.

But even given this competition, Netflix maintains a strangle hold on the United States market:



With new evidence from several sources that the Netflix expansion overseas is working, we have to look now at that cash investment and believe that it's worth it and could very well lead Netflix up from its $7 billion base to somewhere near $20 billion in the next five years.

WHY THIS MATTERS
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Thanks for reading, friends.