Netflix's International Expansion Will Be Successful

Netflix has numerous initiatives planned for international expansion in 2014. But, will Amazon's LoveFilm and Wal-Mart's Vudu allow it to grow?

Jan 28, 2014 at 1:11PM

With an annual gain of almost 300%, Netflix (NASDAQ:NFLX) emerged as the best-performing stock in the entire S&P 500 index in 2013. The company posted strong financial results during the year and rode on the back of robust growth in its streaming subscriber base. Further, based on initiatives for expansion in the Canadian market, and plans for Europe and Latin America, Netflix has a solid upside in 2014.

Expansion in Canada
Netflix recently extended its licensing agreement with the Canadian Broadcasting Corporation. The expanded agreement includes new seasons of currently available CBC TV shows on Netflix. Canada has a population of about 35 million, with more than 13 million households. In 2013, 83% of them had Internet connections, which equates to a target market size of more than 10 million subscribers. If Netflix can acquire 35% of the market, it can gain more than four million subscribers in the country.

European adventure
There are indications that Netflix is, once again, ready to launch in new markets in Europe. It makes sense for Netflix to continue its successful expansion into the continent. However, the threat posed by Amazon's (NASDAQ:AMZN) LoveFilm is very real. The U.K. has a population of about 63 million, and the Nordic countries, together with Ireland, have a population of about 30 million. Netflix plans to target this population of around 93 million people, and could gain a significant number of new subscribers.

The push into Latin America
Netflix's international numbers were skewed by a wave of free sign-ups in Latin America last year. Despite this, the number of paid international additions was strong. Also, Latin America has more than 50 million households with access to broadband Internet connections. Even at a 30% annual growth rate, Netflix should significantly grow its Latin American subscriber base in the next few years.

Competitors
Netflix will face increasing competition from Amazon's LoveFilm in Europe. Recently, LoveFilm developed pilots for new shows, then commissioned five more based on online viewer feedback. The company has beefed up its syndicated TV show line-up and acquired rights to various hit TV series. Currently, the company offers approximately 10,000 TV and movie titles to customers. LoveFilm is pushing aggressively into a digital market that is growing about 17% annually and is projected to be worth $20 billion globally by 2018.

Wal-Mart's (NYSE:WMT) streaming video service, Vudu, has launched an aggressive international expansion. The U.S. retail giant made Mexico the first overseas home for Vudu, ahead of a bigger deployment across Latin America that would encompass more than 30 countries. Vudu will also enter parts of Europe and Asia. According to Juniper Research, revenue from streaming and downloading services in the U.S. was expected to top $4.5 billion in 2013. Wal-Mart wants some of that share through Vudu. Terms of Wal-Mart's acquisition of Vudu were not disclosed, but a person briefed on the deal said the price was over $100 million. Vudu is the third most popular online movie service, with a market share of 5.3%.


Bottom line
Netflix has a solid upside in 2014. Based on its programs for the Canadian and European market, it has positioned itself for another stellar performance. Latin America has a huge addressable market, as several million households have access to broadband connections. Netflix's plans for increasing international net additions will lead to substantial upside momentum in 2014.

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Mark Girland has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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