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Netflix expansion in Europe hits profits

Tuesday, July 22 15:32:37

Netflix's planned expansion in Europe will set the video streaming company up for growth, but will increase content and marketing expenses in the near term, analysts said.

The company's shares were down 4 percent at $433.37 in morning trading today on the Nasdaq. The stock nearly doubled in the year to Monday's close.

At least 14 brokerages raised their price targets on the company's stock by as much as $75 to a high of $550 today, a day after the company said profit more than doubled in the quarter ended June 30.

Netflix said it planned to expand into Germany, France, Austria, Switzerland, Belgium and Luxembourg in September, taking its international addressable market to more than 180 million broadband households - double the current U.S. market.

"The launch into the six new European markets appears costlier than anticipated," Janney Capital Markets analysts wrote in a research report.

Netflix, which now has over 50 million subscribers, already has presence in European countries such as the UK, Denmark, Norway, Sweden and Finland.

The company added 1.12 million customers in international markets in the second quarter, more than the 570,000 customers it added in the United States.

Netflix's international business is likely to post losses or stay in "early-stage margin mode" for the next several years, RBC Capital Markets analysts wrote in a note.

RBC forecast that longer term, margins in the business would be similar to that in its U.S. business, which the brokerage said were 27.9 percent in the latest quarter.

RBC kept its "outperform" rating on the stock and raised its price target to $530 from $500.

Of the 37 analysts covering Netflix, 18 have a "buy" or a higher rating on the stock, 14 have a "hold" and 5 have a "sell" or equivalent rating, according to StarMine data.

"We think Netflix is building an impressive pipeline of original content over the coming quarters and years, which we expect will provide a nice tailwind for sub growth both domestically and internationally," JP Morgan analysts wrote in a note.

Netflix has invested in original series such as "House of Cards" and the Emmy-nominated "Orange is the New Black" to beat competition from Amazon.com Inc and Hulu.

"While we believe in the product and the potential for the company longer-term, we have reservations on current expectations and what is implied in the current stock price," Barclays Equity Research analysts wrote in a note. (Reuters)

For more visit: www.businessworld.ie