Netflix shares were trending up this afternoon thanks to a strong earnings report from the streaming video giant. The company posted more than $83 million in profit for the final quarter of 2014, nearly double what analysts had been expecting. International growth was the big story. While Netflix added 1.9 million US subscribers, a small decline from the same period last year, it saw a big jump in international customers, adding over 2.4 million new users, a roughly 40 percent increase over the same period in 2014. With global growth, the company is hoping to negotiate better, more wide ranging licensing deals for its library of films and television series.
"Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected." The company said that aggressive international expansion would mean profits would be smaller in 2015 than 2014, but it "intend[s] to generate material global profits from 2017 onwards."
A promise to stay profitable while completing international expansion ahead of schedule
Netflix is now available in around 50 countries and has its goal on serving more than 200. One big question mark in that path, as with many internet companies, is China. "For most countries we have a good idea of the best approach for Netflix to take. For China, we are still exploring options — all of them modest. We’ll learn a great deal if we can successfully operate a small service in China centered on our original and other globally-licensed content. That is our preference, for the next few years, if we are able to acquire the necessary permissions."
Netflix wants to be a film global distributor
With international growth, Netflix hopes to become a distribution giant that would rival the Hollywood studio system. "It is advantageous for Netflix to become global in many ways," wrote CEO Reed Hastings. "The big one is absolute size (faster to $10B in revenue) because that revenue allows us to develop and license more content for our members and improve our service. A second is being able to source great stories from around the world and deliver them to the world. A third is the efficiency and influence of being a unique global licensor that provides worldwide distribution."
One market Netflix won't be entering soon is North Korea. The company announced in its investor letter today that it will begin streaming Sony Pictures The Interview starting January 24th.
Netflix last big original series, Marco Polo, was panned by critics. But the company says users loved it, and renewed the show for a second season. It announced today that it plans to create 320 hours of original content this year, roughly triple what it made in 2014. And as proof that viewers actually like Marco Polo, Hastings cited...Rotten Tomatoes.