3 Reasons Why Netflix Should Be Bragging
Netflix is cool. How cool is the biggest gainer last year on the S&P 500 (^GPSC)? Let's dive into the numbers.
It Can Grow Its User Base Even as It Increases Prices
Netflix revealed on Monday afternoon that it will increase its monthly rate from $7.99 to either $8.99 or $9.99 later this quarter. The rate of the increase will vary by country, and it will only apply to new subscribers.
Nobody likes to step into a price increase, but Netflix expects to have 49.81 million streaming subscribers worldwide by the end of June -- 1.46 million than the 48.35 million that it had at the end of March.
Grandfathering in existing subscribers to the current rate for a "generous" amount of time will keep defections in check, but will folks really sign up after the increase? Well, by telegraphing the move now it's a safe bet that folks will sign up soon to get in ahead of the new rate.
It Can Lose Less Money Overseas as It Expands Aggressively
International expansion has been a big part of Netflix's appeal since it introduced its service into Canada less than four years ago. It is now available through dozens of countries across Europe and the Americas, accounting for 25 percent of Netflix's streaming revenue during the first three months of this year.
It isn't cheap to introduce a premium service in a new territory, and Netflix has lost money on its international operations every single quarter. However, the red ink is improving -- especially in light of its healthy top-line growth.
Netflix's forecast for the new quarter calls for a contribution loss of $12 million internationally on $304 million in revenue. That's Netflix's smaller operating loss -- by far -- and suggests that it would become profitable soon if it wasn't for the likely costly push into Germany and France later this year. To properly frame the forecast, consider that a year earlier we saw Netflix post a contribution loss of $66 million on just $166 million in revenue during the same quarter of 2013.
It Can Call Out the Bad Actors Without Being a Bully
CEO Reed Hastings isn't afraid to make enemies during his quarterly updates. He poked fun of HBO Go during the company's fourth-quarter report in January, and this time he's using the quarterly letter to shareholders to take a jab at AT&T (T).
The wireless giant took a shot at Netflix recently in its public policy blog, placing the burden of slow Netflix connectivity for U-verse customers on the video service itself. Netflix points out on Monday afternoon that what are now at least 250 comments from AT&T customers on the blog post largely defend Netflix.
%VIRTUAL-article-sponsoredlinks%Netflix taunts Internet service providers with a monthly report card on connection speeds that it's getting for its streams across the leading providers. This has gotten other providers to play nice with Netflix.
Comcast (CMCSA) saw its rating improve dramatically last month after coming to terms with Netflix. AT&T's U-verse has yet to play along, and Netflix points out how easy it would be for Ma Bell to do right by its subscribers. "It is free and easy for AT&T to interconnect directly with Netflix and quickly improve their customers' experience, should AT&T so desire," Hastings writes.
It's a not-so-subtle jab at AT&T, and a warning to the next company that decides to diss Netflix. With the company closing in on 50 million streaming subscribers worldwide, it's not good to have Netflix as an enemy.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix.