Can Netflix Break Into China?

Media

Published: May 15, 2015 9:20 am

Last Updated: May 15, 2015 9:25 am

China is the next big thing, and it has been for almost the past 20 years. As the country is transitioning from solely a manufacturing economy to a consumer economy, there are stark changes and new opportunities to market to its consumers. Netflix Inc. (NASDAQ: NFLX) is already expanding internationally. It may soon find another big opportunity, if it can get into China.

According to Bloomberg, Netflix is currently in talks with China to break into the Asian media streaming market. Jack Ma, notable head of Alibaba, might be the way into China through one of his companies, Wasu Media.

The information came from people “who asked not to be identified because the talks are private.”

With hit shows like “Orange is the New Black” and “House of Cards,” Netflix could stand to have explosive growth right off the bat. China’s population is around the 1.4 billion mark. According to Bloomberg, “The market is expected to almost triple to 90 billion yuan by 2018, according to Shanghai-based Internet consultant IResearch.” (At current rates, 90 billion yuan translates to about $14.5 billion.)

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However, one of the biggest issues that Netflix will have to confront in this move — should it happen — is Chinese censorship. Bloomberg stated that:

Netflix would need to sort out content censorship regulations with Chinese authorities. Starting this April, new episodes of foreign programs — including “Mad Men” and “The Simpsons” — can’t be shown until after the shows’ seasons have ended, according to a government notice.

Previously, Netflix was raised to Buy from an Underperform rating at Bank of America Merrill Lynch, and the price target that was thrown up was $722 (versus a $554.90 close). The firm likes the original content strength and international opportunity, with triple-A content supporting domestic and international subscriber growth. They even see international being five times that of the United States.

The company announced its first-quarter results in mid-April. Netflix’s first-quarter results were $0.38 in earnings per share (EPS) on $1.4 billion in revenue, compared to Thomson Reuters consensus estimates of $0.69 in EPS and $1.57 billion in revenue. The company gave guidance for the coming quarter of 2015 as $1.47 billion in total revenue and 2.5 million in total net subscriber additions, versus a consensus estimate of $1.66 billion in revenues.

Shares of Netflix closed Thursday up 1.2% to $586.85, in a 52-week trading range of $315.54 to $594.00. In premarket trading, shares were further up 3.8% at $608.90. The stock has a consensus analyst price target of $574.05.

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