When Can Netflix’s International Streaming Business Break Even?

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Netflix‘s (NASDAQ:NFLX) international streaming business accounts for about 30% of the company’s value as per our estimates, despite the fact that it is currently clocking up huge losses. This can be attributed to the fact that we expect the segment to break even in the near future and increase its profits considerably thereafter. At present, Netflix spends a huge amount on international marketing as it wants to establish a strong brand image from the outset. Also, Netflix is focusing on bringing original content to new markets, which further adds to its costs. While these investments are justified, they end up overshadowing the segment’s revenues.

 

The company is unprofitable in international markets due to high upfront spending on the content and a relatively low subscriber base. And since these costs are somewhat fixed in nature, good subscriber gains through continued expansion can easily outpace the growth in costs. In fact, Netflix mentioned that the markets it launched into prior to 2014 (Canada, Latin America, the UK, Ireland, the Nordic countries, and the Netherlands) became profitable on a contribution basis in Q3 2014 and continue to grow.

netflix break even table

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We project the company’s international streaming business to become profitable in 2019 (on a free cash flow basis) and grow strongly thereafter.

netflix break even chart

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