Netflix, Inc. (NASDAQ:NFLX) today announced a deal whereby it’s getting exclusive access to 300 hundred hours of exclusive content from Dreamworks Animation Skg Inc (NASDAQ:DWA). DreamWorks Animation has a rich content collection of high-budget, high-grossing films like Shrek, Kung Fu Panda 2, Madagascar, and How to Train Your Dragon. Over the past five years the total grossing value of the films ranged from $321 million to $742 million.
Neither the length of the deal nor the price of the deal was disclosed in the public announcement. Netflix will most likely disclose the amount it spent on its recent content deal when it announces earnings in the next month.
Key takeaway
Perhaps the biggest advantage to DreamWorks investors is that it provides a better monetization strategy over the long-term. The benefit of selling content to Netflix is that Netflix, Inc. (NASDAQ:NFLX) is expanding internationally, which gives DreamWorks instantaneous content redistribution, and it will market its products to consumers who may be unfamiliar to its various movie franchises. The deal is lucrative because it uses the collective buying power of Netflix’s 26.5 million paying members to pay for the redistribution of content.
Some analysts are criticizing Netflix for its almost non-existent profit margin, but the biggest benefit to this deal is that it increases the appeal of having a Netflix subscription, which may translate into higher rates of sales growth, which is a much more important metric when it comes to analyzing growth stocks.
Analysts anticipate Netflix, Inc. (NASDAQ:NFLX) to grow revenues by 20.10% in the current fiscal year; however we have no way of knowing how accurate these predictions are. This is because Netflix’s upper-management is only willing to provide guidance up to a quarter out.
Let’s not forget that Netflix has been able to beat analyst estimates by 117.87% on average over the past four quarters. The company’s recent launch of original content series and its purchase of high quality content from Time Warner Inc (NYSE:TWX), The Walt Disney Company (NYSE:DIS), and DreamWorks are putting it well ahead of its competitors. Eventually, we will enjoy original classics like Family Guy, Iron Man 3, Shrek, all for $8/month.
Netflix is trying to grow out its international streaming business, and that’s probably the reason why Disney jumped ship from Hulu in favor of Netflix, Inc. (NASDAQ:NFLX). After all Netflix’s international distribution continues to gain greater economies of scale.The Procter & Gamble Company (NYSE:PG) projects that between 2010 and 2020 the middle class will increase by 1.4 billion people, and 98% of that will come from the emerging markets alone. Internationally, I predict that the number of Internet users will increase to approximately 5 billion people by 2020. This implies that Netflix’s growth story is nowhere near over and that the company is extremely far away from market saturation.
Investment metrics
Netflix remains a lucrative investment opportunity despite all the negativity surrounding the extremely high earnings multiple. The earnings multiple is 548.6, which is high, but, on the other hand, the company is projected to grow earnings at an absurd rate over the next two years. Analysts anticipate Netflix to grow earnings by 386% in fiscal year 2013, and to follow that with 121.3% growth in 2014.
