Netflix's (NFLX) overseas potential encouraged Goldman Sachs last week to upgrade its view of the leading premium video service to "buy" from "neutral."
Netflix's 35.67 million domestic streaming accounts as of the end of March comprise nearly a third of America's households. But analyst Heath Terry -- whose employer Goldman Sachs (GS) had been neutral since 2011 -- feels that the real catalyst for the company's growth rests in its international prospects. Terry is using that thesis to justify boosting his price target from $380 to $590.
It's a Small World
Netflix has a presence in more than 40 countries, but it has just 12.68 million streaming accounts outside of the United States. That number has serious potential to grow.
Goldman Sachs sees the addressable international market for streaming video -- the number of homes that have access to broadband to watch digital video at home -- more than doubling over the next three years to 207 million potential accounts. If Netflix is able to nab 30 percent of those homes -- in line with how it's faring in America -- that would be about 62 million international subscribers come 2017.
Netflix's international operations are collectively running at a slight loss these days, but looking ahead, Terry predicts 20 percent margins for Netflix's overseas business. It's close to turning the corner of profitability outside of the U.S.; the company posted its smallest deficit this past quarter since expanding internationally in 2010. Netflix's guidance predicts an even smaller loss for the quarter that ended in June. Overseas profitability will make it easier for Netflix to invest in more proprietary content geared to these other markets.
There's a Map for That
Netflix debuted internationally in the fall of 2010 with Canada. It followed that up with dozens of Latin American and Caribbean nations before turning to Europe.
%VIRTUAL-article-sponsoredlinks%Netflix isn't revealing how its 12.68 million international accounts break down by country, but it's a safe bet that it lacks the kind of country-specific dominance that it has closer to home. It can't justify the push for original programming like it did in the U.S. with "House of Cards" or "Orange Is the New Black" when it has to divide those costs by hundreds of thousands of subscribers instead of tens of millions.
Scalability is a big thing for Netflix, and the concept should continue to work in its favor despite the decision to increase monthly prices worldwide earlier this year. Netflix is making some country-specific additions to its growing digital library, and it is pushing into continental Europe later this year. The real treat awaits when Netflix has the world defaulting to the premium service as the platform of choice.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our newsletter services free for 30 days.
8 Ways Watching Too Much TV Is Costing You Thousands
Netflix Is Out to Conquer the World, and Goldman Thinks It Can
Cable and satellite TV can run you a pretty penny -- especially if you fall prey to companies' cleverly crafted package deals. You really adore the programming on Channel XYZ, but you can only get it if you upgrade to the higher-tier package, which is an extra $20 a month and has dozens of channels you never look at. Found another provider who offers a better deal? Get ready to be socked with early termination fees by your current provider -- and for your new provider's fantastic deal to run out once you're not a new customer anymore.
The average American watches five hours of TV a day -- 1,825 hours a year. Think of all the other things you could be doing with that time to earn extra money. You could get a second job, start your own business, go back to school, or improve your skill set so you can qualify for a higher-paying job.
Excessive TV watching has been linked to obesity, heart disease, diabetes, depression and even a shorter lifespan. And the cost of treating a long-term health issue is rarely cheap -- in terms of money or happiness.
Kids aren't the only ones susceptible to the "I want it!" syndrome caused by too much TV advertising. No matter how savvy and impenetrable to marketing you think you are, companies invest millions of dollars in television ads for a reason -- because they work. Being pelted with tempting commercials for products and services takes its toll on your money mindset. It's easy to fall into the consumer trap when you're constantly being shown shiny new things guaranteed to make your life better.
Do you love watching the glamorous lifestyles on "Real Housewives"? Drool over the spacious properties on "House Hunters?" TV is a form of voyeurism that allows us to peek into the lifestyles of those richer and more famous -- and it can leave us dissatisfied with what we have because we get so used to seeing those who have more. This can result in us making purchases we can't really afford because we're trying to keep up with those televised Joneses.
In a similar vein, TV can make us feel dissatisfied with our appearance. Compared to the gorgeous, flawless people we see on shows and commercials, it's easy to find 101 ways our looks don't add up. Seeing nothing but an idealized standard of beauty on screen can drive us to spend tons to try to make our own appearances match, from jumping on the latest fashion bandwagon, buying whatever cream is the new hot development, or even springing for surgery to physically remake ourselves.
Snacking and TV watching often go hand in hand, and when your attention is focused on a show, it can be easy to down a whole bag of chips before you realize what you're doing. Combine that with the fact that TV watching is a sedentary activity, and you've got the makings for a much bigger cost than just that bag of chips. (See No. 3.)
While TV engages our attention, it doesn't engage our brains, at least not the way that reading, continuing education and real-life problem-solving does. It's a largely passive form of entertainment that can leave us feeling lazy, sluggish and unfocused. And that lack of mental energy can take a toll when it comes to things like our job performance, our drive to start that new business, or our willingness to get out and network our way to our next great job.