By now, I'm sure you've heard that the US-based Netflix raked it in at its most recent earnings call.
The online streaming giant announced its quarterly earnings to the US market last week, reporting a stunning 22.7% increase in quarterly revenues to $1.65 billion and earnings of 0.06 cents per diluted share – the latter was above consensus estimates.
Meanwhile, it added a whopping 3.3 million subscribers over the three months – 0.9 million from the US and 2.4 million internationally – giving it a grand total of 65 million subscribers. And the alarming thing is, the company is still in its early stages of growth with plans to expand into well over 100 more countries over the coming years.
The response from investors was nothing short of spectacular as the shares surged 18%, adding a remarkable US$7.5 billion, or A$10.1 billion, to its market value in just one night.
Indeed, Netflix has taken the world by storm and the response has been no different from Australian consumers. In fact, a recent analysis undertaken by Roy Morgan shows that Netflix was already being used by 1.42 million people in 559,000 Australian homes in June – up from the 1 million people and 408,000 homes recorded in May.
Of course, that rate of local growth is not sustainable in the long-term, and one does have to wonder if some users will cancel their services after their free trial periods end, but the numbers should still continue to rise at an impressive pace, nonetheless.
What that means for you…
Although there are some sceptics who question the streaming video company's lofty valuation, others would point out that Netflix is on the path to total global domination.
Indeed, the $10.1 billion that was added to Netflix's share price after its earnings results last week is more than three times the combined market values of Australia's three free-to-air networks. According to Google Finance, those companies, namely Ten Network Holdings Limited (ASX: TEN), Nine Entertainment Co Holdings Ltd (ASX: NEC) and Seven West Media Ltd (ASX: SWM), have a combined value of just under $3.3 billion.
Netflix's local dominance is also a huge threat to Foxtel, owned by Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS). The streaming service is considerably cheaper with a wider array of movies and shows on offer, although Foxtel does still have the advantage of offering sports and news.
It's clear that Australia's media and entertainment landscape is changing at a dramatic rate with some industry experts suggesting that free-to-air networks will be virtually extinct by the year 2020.
As such, investors would be wise to avoid the sector altogether and should instead consider exposing their portfolios to telecommunications providers such as TPG Telecom Ltd (ASX: TPM) and Telstra, whose services are vital to Netflix's success.
