Will Netflix Keep It’s Upward Trend?

Netflix‘s (NASDAQ:NFLX) third-quarter earnings report is scheduled to be released next week. As usual, one key metric investors will be watching is member growth. Netflix’s net member additions for a given quarter provide insight into how well the company is retaining and attracting members — obviously a key narrative for a company whose entire business model is based on a monthly subscription.

But one increasingly important narrative that investors should be giving just as much attention to is the company’s overall progress with its ongoing international expansion. Highlighting the importance of Netflix’s international operations, international streaming revenue represented nearly 50% of total revenue in the company’s most recent quarter.

Ahead of Netflix’s next quarterly report, here’s a preview of what to look for from some key aspects of the streaming TV company’s international business.

International member growth

Netflix’s member growth has been quite impressive recently. Members surged from about 104 million in the second quarter of 2017 to 130 million in Netflix’s second quarter of 2018. These net member additions, however, wouldn’t be very impressive without the company’s international growth. Of these approximately 26 million new members, nearly 21 million of them came from abroad.

For Netflix’s third quarter, the company expects 4.4 million new international members. This would bring total international members to about 77 million, or 57% of Netflix’s projected 135.1 million members by the end of the period.

International revenue

It’s difficult to overstate how critical Netflix’s international business is to the company’s growth story. Though Netflix’s international streaming revenue accounted for 49% of total revenue in Q2, the company’s international streaming revenue is higher than U.S. streaming revenue (a comparison that notably removes Netflix’s dwindling DVD business out of the equation); Netflix’s second-quarter international streaming revenue was $1.92 billion while U.S. streaming revenue was $1.89 billion.

For Netflix’s third quarter, management expects international streaming revenue of $1.97 billion, up a whopping 48% compared with international streaming revenue in the year-ago quarter.

International contribution profit

Of course, though Netflix’s international business represents a significant portion of the company’s revenue and total members, it’s still not contributing much to Netflix’s bottom line. In the company’s second quarter, its international contribution profit was $298 million. Though this is up sharply from Netflix’s contribution loss of $13 million in the year-ago quarter, it’s far behind Netflix’s contribution profit of $740 million for its U.S. streaming business during the same period.

Fortunately, Netflix expects more strong year-over-year improvement in its international streaming contribution profit. Management guided for a contribution profit of $290 million from its streaming business abroad. This is up from an international streaming contribution profit of $62 million in the third quarter of 2017.

If you plan to tune in to Netflix’s third-quarter earnings release, check the company’s investor relations website about five minutes after market close on Tuesday, Oct. 16.

source: fool.com