Netflix Still Dominates North American Traffic

Netflix's (NASDAQ: NFLX  ) dominance in the North American video streaming space continues to make it one of the most important investments in living room entertainment, and the latest numbers from a Sandvine report show the company makes up 31.6% of peak downstream traffic in North America -- far outpacing the competition.


Source: Netflix.

Battling for downstream traffic
Netflix's closest competitor in the North American downstream category is Google's YouTube, which holds 18.6% of the downstream market. Netflix's traffic share dropped slightly from 32.3% in the first half of this year, but Sandvine was quick to note the company should easily make that back or surpass it, in part because of its recent launch of SuperHD.

YouTube has made some traffic gains in 2013 with its downstream share jumping 9% from the first half of this year. The increase is attributed to a spike in YouTube viewing on mobile devices at home. In the third quarter of this year, 40% of YouTube's worldwide traffic came from mobile devices.

While Netflix has more than doubled its mobile downstream traffic over the past 18 months, it still lags behind with just 5% of the mobile streaming traffic share in North America.

A bigger perspective
Though Netflix is dominating North American downstream traffic, the report mentioned that YouTube is a dominant force in other regions and is "the leading source of Internet traffic in the entire world."

In Europe, YouTube accounts for 28.7% of downstream peak period traffic, while Netflix takes just 3.4%. Though that's quite a number chasm, it doesn't paint the entire picture for Netflix. The company only launched its European service in January 2012, and in places where the service is available -- like the British Isles and the Netherlands -- Netflix accounts for about 20% of peak traffic on some networks. The report points out that it took Netflix four years to reach the same percentage in the U.S.

Foolish thoughts
Netflix clearly has the lead in North American living rooms and is doing everything it can to stay ahead of the competition. This past quarter Netflix managed to win an Emmy Award for its House of Cards original program, increased its domestic subscribers by 1.3 million, and expanded its international subscribers by 1.4 million. But while increasing subscribers is one of the main factors investors should pay close attention to, it's not the only one.

Netflix's price-to-earnings ratio is at a staggering 282, and the stock experienced some wide swings in October. Netflix CEO Reed Hastings recently said the company's stock has "had solid results compounded by momentum-investor-fueled euphoria." Investors should be cautious to jump in with Netflix simply based on its 267% gain since the beginning of the year.

While there are a lot of reasons to expect the company to continue gaining subscribers and increasing earnings, some investors are questioning how much longer the company can maintain its massive growth. Billionaire investor Carl Icahn sold more than half of his stake in the company just last month. While that doesn't mean all investors should tap out now, Netflix will need to continue to deliver strong numbers to justify the stock's premium -- and investors should be cautious in getting caught up in past gains.  

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  • Report this Comment On November 12, 2013, at 2:41 PM, AceInMySleeve wrote:

    "In the third quarter of this year, 40% of YouTube's worldwide traffic came from mobile devices."

    Wow that's more than I ever would have guessed. Interesting.

    Did Netflix change compression codecs at some point? That could affect their numbers.

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