When it comes to some of the major names in the streaming video marketplace, one of the first things I look for is a company’s ability to form partnerships with some of the major pay-TV providers throughout the globe. With that said, I wanted to take a brief look at the recent activity of Netflix NFLX and note how its partnership with France’s Orange (ORAN) could lead to additional European-based pay-TV partnerships and stronger earnings over the next 12-24 months.
Company Overview
Headquartered in Los Gatos, California, Netflix, Inc. operates as an Internet television network, is engaged in the Internet delivery of TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. The company also provides DVDs-by-mail membership services.
Performance & Trend Behavior
As of Wednesday's close, shares of NFLX, which have risen just over 19% on a year-to-date basis, possess a market cap of $26.37 billion, a gross margin of 30.80%, and a PEG ratio of 4.22. Based on their closing price of $438.80/share, shares of NFLX are trading 5.05% below their 20-day simple moving average, 3.49% below their 50-day simple moving average, and 7.23% above their 200-day simple moving average.
Based on their recent trends these numbers indicate both a short-to-mid-term downtrend and a long term uptrend for the stock, which generally translates into a selling mode for most near-term traders and a buying mode for many long-term investors. Given the company's recent news, I strongly believe we could see its trend behavior reverse course on the heels of its latest pay-TV partnership with France’s Orange (ORAN).
A Brief Look at the Netflix-Orange Partnership
On Wednesday, October 1, Stephane Richard, the CEO of giant French-based Orange confirmed to Le Monde that Orange will offer Netflix-based services to pay-TV clients through its set-top boxes. "The negotiations were tough but are finished and there is no reason to penalize Orange customers, who will have a much better experience using Netflix through the box.”.
Not only does this give Netflix the opportunity to offer its services to Orange’s subscriber base (which stood at 5.78 million as of the end of Q2), but it also enhances presence throughout all of France and could set the stage for additional European-based partnerships over the next 12-24 months.
Conclusion
If Netflix can continue to successfully enhance its European footprint through its recent partnerships in France, then I strongly believe that not only will its recent trend behavior reverse course and begin to move in more of an upward direction, but its full year earnings for both 2014 (in which analysts are calling for the company to earn $3.86/share on revenue of $5.51 billion) and 2015 (in which analysts are calling for the company to earn $6.60/share on revenue of $6.87 billion) should have no problem surpassing analysts’ expectations.
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