Netflix International Growth Missed Expectations Because Of Limited Language And Credit Card Options

Goldman Sachs’ Heath P. Terry believes that the potential for revenue growth acceleration going forward makes the risk/reward on Netflix, Inc. NFLX favorable.

Terry maintained a Buy rating on the company, while lowering the price target from $130 to $120.

1Q Results

Terry mentioned that Netflix reported its revenue for the quarter mostly in line with the consensus, with 30 percent year on year FX-neutral revenue growth.

Both domestic and international subscriber growth was ahead of expectations, while the GAAP EPS beat the consensus, “driven by the timing of international content investments.”

2Q Guidance

Following domestic streaming net adds of 2.2 million and international net adds of 4.5 million for 1Q, Netflix guided to 0.5 million domestic net adds and 2 million international net adds for 2Q, below the consensus.

“Netflix expects flat yoy contribution margin in the US and sequential improvement in international losses for 2Q,” Terry stated.

International Subs

The company mentioned that its international net adds guidance reflected tougher comps due to the launch in Australia and New Zealand during 2Q15 and normal seasonality.

According to the Goldman Sachs report, “The company commented that in the recently launched 130 markets, Netflix is offered only in English and payment methods are limited to international credit cards.”

However, Netflix intends to add more local languages in the coming quarters, as well as payment options, content and customer support, to drive significant subscriber growth.