Netflix is making a heavy investment in expanding overseas, especially in Asia. But many believe the strategy may not yield the desired results anytime soon, says a report from CNBC.
Big global presence but no profits for Netflix
Last month, Netflix entered its first Asian market, Japan, and has already revealed plans to expand its services in Singapore, Hong Kong and Taiwan by early next year. India and China are also on the list. The U.S. firm is expected to debut India in 2016, the Times of India reported in July. Netflix has already made its service available in other major countries such as Germany, France, Australia, New Zealand, Finland, Ireland, the Netherlands, the United Kingdom and Sweden.
Despite a big global presence, the U.S. firm’s Wednesday’s earnings report showed the struggle it is facing outside the U.S. In markets outside the U.S., losses for the streaming firm more than doubled from $31 million last year to $68 million. For the fourth quarter, Netflix expects the unit to produce a loss of $117 million. Add to that the fact that the current international losses exclude technology or general and administrative (G&A) expenses, which were up by $100 million combined year over year, according to Michael Pachter at Wedbush Securities.
“They are spending literally $300 million a year on costs that they don’t count when calculating contribution profit so they are not even remotely close to being profitable internationally,” the analyst warned.
Payoff in long term
Pachter believes that apart from English-speaking countries such as the U.K., Netflix is not profitable in any of its international markets, probably due to a small user base. However, the analyst expects Singapore to be a profitable market.
Giving a break-down of Netflix’s global subscriber base, Pachter says of the 25 million subscribers, around 3 million are from Canada, 4 million are from the U.K., 3 million are from Brazil, and the remaining 15 million are from other 65 countries, suggesting “a couple 100,000 subscriptions in each of those countries.”
“They are rolling out throughout Asia and investing in new markets and that does eat into international profitability, making those losses bigger and holding back overall profits,” said Rick Munarriz at The Motley Fool.
But this not mean that mean that it won’t pay off in the long-term. Munarriz notes that once the overseas operations are settled, profits could “explode by 2017,” provided investors get through the “choppy 2016.”
