Netflix Outperforms on Solid Original Content Portfolio
Zacks Equity Research
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Netflix Inc. NFLX stock has been one of the better-performing technology stocks in the last one year. Shares gained 20.66% as compared with the Zacks Broadcasting-Radio and Television industry’s return of 9.73% on the back of its expanding original content product portfolio, which has substantially driven up subscriber base.
The company expects to add 1.45 million subscribers in the domestic streaming segment and 3.75 million subscribers in the international segment in the fourth quarter of 2016. Notably, in the third quarter, it added 3.57 million new members, bringing the total to approximately 86.7 million subscribers across the globe (guided range was 85.5 million).
Growing subscriber base especially benefited from the release of programs like Stranger Things and season two of Narcos. Management also announced that the company plans to make 50% of its total content original over the next few years.
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International Titles Key Growth Driver
Netflix continues to expand into international markets like Korea and India. Recently, the company announced first Korean original series – Love Alarm – based on the webtoon by Kye Young Chon, one of Korea's most popular comic authors. The series will premiere on Netflix in 2018 in over 190 countries.
Further, Netflix announced a long-term partnership with Indian movie superstar Shah Rukh Khan’s Red Chillies, under which movies starring the Indian superstar will be exclusively available to more than 86 million members globally.
Additionally, partnership with the likes of CBC, Northwood Entertainment and others will boost its content further. Netflix has also entered into series of deals pertaining to products, licensing and intellectual property agreement with digital home entertainment services and solutions provider TiVo Corporation TIVO. (Read More: TiVo Corp. & Netflix Enter into Multiple Agreements)
New Web-based Free Game Launched
Meanwhile, Netflix has introduced a free 8-bit endless runner game in the web that features some of the well known characters from its popular shows. The game can be found at flixarcade.netflix.io, where players can choose among characters of Pablo Escobar (drug baron from Narcos), Marco Polo (from show of the same name), Piper Chapman (protagonist of Orange Is The New Black) and Mike Wheeler (main character of Stranger Things).
 
Netflix, Inc. Price and Consensus
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Netflix, Inc. Price and Consensus | Netflix, Inc. Quote
The interesting feature of the game is that the environment changes corresponding to the character a gamer chose to play with. So if you are playing Pablo Escobar, you will be running through a jungle, while as Piper Chapman the background changes to prison. Despite the game’s retro look and lack of high-quality graphics, we believe it will be successful in attracting casual gamers due to this detailing.
However, it remains to be seen whether Netflix delves further into serious game development based on its popular characters or shows going ahead. Although there are many instances where many successful games (like Assassin’s Creed) have been adapted for movies and shows, the vice-versa has not always been profitable, particularly for a late-entrant like Netflix.
Nevertheless, gaming can be an interesting endeavor for the company as it will diversify its revenue source. We note that Netflix is facing significant competition in the streaming market from the likes of Amazon.com AMZN, Hulu and HBO, which is a major headwind.
Zacks Rank & Key Picks
Netflix has a Zacks Rank #3 (Hold). CBS Corp CBS carrying a Zacks Rank #2 (Buy) is a better-ranked stock in the sector. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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