NetFlix Struggling To Control Costs
The US streaming Company who have given the Federal Government the two finger salute by not collecting GST on millions of dollars in revenue is spending money faster than they are making it according to Seeking Alpha.
They claim Netflix costs are rising faster than revenues and that the profit expectations in the stock price are unrealistically high, costs have risen 30% while revenues have only risen 7%.
They claim that Investors in the streaming giant who has 50 million subscribers around the world is struggling to keep up with the demands that Hollywood studios are asking of Netflix.
They claim that investors in Netflix are playing a dangerous game by investing in the Company.
They claim that “When the music stops on Netflix, the stock will likely get crushed”.
Netflix who has launched an extremely limited service in Australia compared to what is available in the USA is working to increase its streaming content library.
To do this Netflix has to pay licensing fees to host and distribute this content to its customers.
However, the growth in spending on this content far outpaces the company’s revenue growth.
Versus 2013, Netflix’s 2014 streaming content obligations increased 30% to $9.5 billion dollars while revenue only increased 7%.
This trend began in 2010 when streaming content costs first accelerated.
In the USA consumers are starting to ditch Netflix for alternate content offerings.
Overall subscriber growth was up in 2014, but issues with that stat persist under the surface.
In the fourth quarter of 2014 Netflix added only 1.9 million subscribers to its U.S. streaming segment, down from 2.3 million the prior year.
This segment’s contribution margin declined to 28%, down from 29% the prior quarter.
Netflix has continued to expand internationally, and the company added 2.4 million members over 1.7 million the year before.
However, the international segment’s contribution margin plummeted to -20% from -9% the prior quarter. Netflix has grand plans to expand internationally with markets like Australia being bought on-board alongside several Countries in Europe.
The thirst for International expansion have only cost the company more money.