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How International Business Impacted Netflix’s Earnings

via Market RealistGlobal expansion fuels audience growth|

For a few years, Netflix (NFLX) dedicated its resources to expanding its business outside the United States (SPY) in what was known as a global expansion drive. In that drive, Netflix invested billions of dollars as it sought a presence in 200 countries.

Netflix is now available in several markets in Europe (EFA), including the United Kingdom (EWU) and Germany (EWG). In Asia, it’s now in Japan (EWJ), India (INDA), and China (MCHI).

The global expansion helped Netflix acquire new subscribers rapidly, with its global subscriber base rising from 53.1 million in 3Q14 to 109.3 million in 3Q17. The company added 5.3 million subscribers in 3Q17, most of them overseas.

How has robust audience growth translated into financial value for Netflix?

netflix

International contributed 44.5% of revenue

Netflix’s revenues and profits have grown substantially in recent quarters, a development that could largely be attributed to its global expansion. In 3Q17, Netflix reported total revenue of ~$3.0 billion, a 30.3% rise year-over-year. International operations contributed 44.5% of total revenue in 3Q17 compared to 37.2% in 3Q16.

Netflix ended its losses in its international streaming business by posting a contribution profit of $62 million in 3Q17. It suffered a contribution loss of $69 million in 3Q16 and a contribution loss of $68 million in 3Q15. Strong growth in overseas subscribers is contributing to Netflix’s improved profitability.

Contribution profit is a measure of profitability calculated by subtracting total variable costs from total sales of a business unit.

Improving international profitability boosts bottom line
Improvement in its international business profitability boosted Netflix’s overall profitability in 3Q17. The company reported a net profit of $129.6 million in 3Q17 compared to a net profit of $51.5 million in 3Q16.

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