Netflix (NASDAQ:NFLX) is back in Wall Street's good graces. Its fourth-quarter earnings report in January showed spiking profitability and a clear path to global expansion by the end of 2016.
That happy news helped investors look past worries over slowing member growth in the United States. The stock just touched a new 52-week high of $478 per share after dipping to as low $325 twice in the past year.
Netflix's business isn't nearly as volatile as all the stock price wiggling suggests. But long-term investors still need to keep an eye on a few important developments in the streamer's growth. For the month ahead that means tuning in on March 6, 20, and 31.
Flooding the service with new content
This is the year of original content on Netflix. CEO Reed Hastings and his executive team plan to launch 320 hours of original series in 2015, three times the amount released in 2014. March has two new shows for investors to keep tabs on: Unbreakable Kimmy Schmidt (debuting March 6) and Bloodline (March 20).
Unbreakable is Tina Fey's first return to TV since 30 Rock's hit seven-season run. Originally set to air on NBC, the show was sold to Netflix after executives worried they couldn't support it long enough to build a big viewer base. Netflix's management doesn't have the same concern. "We can take the time to find the audience that will love this show," Chief Content Officer Ted Sarandos told The New York Times, "We're just not under any unique pressure to do it at, say, Thursday night at 8 o'clock."
Meanwhile, Bloodline is the product of Netflix's first TV deal with a major Hollywood studio. It was produced by Sony, of Breaking Bad fame. Created by the folks behind Damages, this thriller has the potential to attract a big following. Netflix plans to run a huge marketing campaign behind the launch, which could also provide a bounce in membership. The show is part of the growing list of content available for streaming in ultra-high definition.
The downside to Netflix's further push into original content is a historic drain on cash. In fact, free cash flow turned negative recently, and Netflix seems set to keep to that pace at least through next year. That's why it took on $1.5 billion of new loans in early February.
Closing out a strong quarter
March 31 marks the end of a quarter that should see Netflix add 4 million global subscribers. That's would represent slightly faster growth than the company booked in the year-ago quarter. Quarterly revenue should spike higher by 31% to $1.4 billion. By comparison, Netflix booked the same amount of revenue on an annual basis as recently as 2008.
Profitability is also expected to crack a new-high 30% in the United States market as Netflix reaches 40 million domestic members. The international subscriber base won't be profitable this quarter, but it should see strong user growth of 63% to 19 million paying members.
Looking further out, investors can expect Netflix's business to seem weaker this year on two metrics: cash flow and profit. The company should earn less in 2015 because of the investments in international expansion. And cash flow will be depressed by the ramp-up in expensive original content launches. But if you believe management, this spending will pay off in a profit margin of 40% by 2020 and a long runway of international profit growth starting in 2017.