Netflix (NFLX) Q1 Earnings Gain From Solid Overseas Growth

Netflix’s (NASDAQ:NFLX) first-quarter 2018 earnings and revenues breezed past the Zacks Consensus Estimate.

The results were driven by a solid increase in streaming revenues (recording highest growth in the company’s history) on the back of robust addition in paid subscribers and rise in subscription charges.

The attractiveness of Netflix’s diverse content portfolio is evident from the fact that subscriber addition remained unaffected despite a hike in subscription prices. The company added 7.41 million subscribers in the quarter, which surpassed expectations of 6.35 million.

International Expansion – Key Growth Driver

Netflix’s aggressive expansion into the international markets has been beneficial, with the company generating 48% of revenues from this segment. International Streaming revenues soared 70.4% year over year to $1.78 billion in the quarter.

The company’s efforts to attract viewers through investments in regional programming have added significantly to its user base. International Streaming subscribers increased 42.6% year over year to 68.29 million, making it 54.6% of its total subscriber base. Paid members were 63.82 million, up 41.8% from the year-ago quarter.

Moreover, the profit margin from this segment expanded 1,120 basis points (bps) from the year-ago period to 15.3%.

Furthermore, Netflix projects international revenues to exceed domestic revenues in the second quarter. International streaming revenues are expected to be $1.943 billion, $45 million more than domestic revenues in the June quarter.

Netflix, Inc. Revenue (TTM)

Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote

Content is King, Whopping Budget Kingmaker

Netflix has been drawing strength from its massive library of original content. Investment in original content is one of the major factors that helped the company in gaining a competitive edge.

Netflix has set a budget of $7.5-$8 billion for production/acquisition of original content in 2018. The company plans to release 30 international original series in 2018, including programs from France, Poland, India, Korea and Japan. The company intends to produce/acquire 80 films throughout the year.

On the last conference call, management announced returning seasons of highly popular series 13 Reasons Why, Luke Cage, GLOW, Dear White People and Unbreakable Kimmy Schmidt. A comedy feature film named The Week Of, starring Adam Sandler and Chris Rock, is also set for release this month.

Also, 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.

Zacks Rank & Other Stocks to Consider

Netflix has a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the same space are Paycom Software (NYSE:PAYC) , Western Digital (NASDAQ:WDC) and Applied Materials (NASDAQ:AMAT) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

While Paycom is set to release earnings on May 1, Western Digital will announce the same on Apr 26. Applied Materials will report results on May 17.

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