Part of this is driven by greater economies of scale, which improves the contribution margin (the marginal profit per unit sale). The other factor is cost cutting measures. Those two combined will increase the total amount of net income. Even if the company were to fail at generating substantial net income growth, long-term investors would buy the stock based on the tremendous revenue growth potential.
Walt Disney a lucrative investment opportunity
Netflix, Inc. (NASDAQ:NFLX) is the most likely of the tech companies to expand into emerging markets — something Walt Disney needs a market presence in. While Mickey Mouse is a common household icon in the United States, that’s not always the case in emerging markets like Brazil, Russia, India, and China. The $8 price point is an equalizer that can work in literally any market economy that has a high number of Internet users.
Because Walt Disney wants to open more of its Disneyland theme parks, the company needs to ensure that the local demographic has an understanding of the various Walt Disney characters — otherwise what will draw people to see Tigger and Winnie the Pooh? Walt Disney’s Parks and Resorts segment is its second largest segment and its fastest growing segment according to its most recent earnings release. Parks and Resorts generated $3.3 billion in revenue for the second quarter and had an operating profit of $383 million. The operating profit from its Disney Park and Resort segment grew by 73% year-over-year.
Analysts on a consensus basis anticipate Disney to grow earnings by 12.37% on average over the next five years. This is likely to be sustained based on the growth in its Parks and Resorts segment. The company compensates investors with a 1.18% dividend yield and remains a compelling investment over the long-term.
DreamWorks Animation will grow exponentially
The exact dollar figure that Netflix would pay to DreamWorks Animation isn’t exactly clear. However, from what I see on DreamWorks Animation’s income statement, the company reported a year-over-year decline in earnings of around $4 million for the first quarter. Assuming Netflix pays out more than $12 million per year for the content (which I am sure it will), the net benefit to DreamWorks Animation is that it will immediately boost the amount of profit it generates from movie development. The added revenue stream is an extra source of revenue that comes without any added costs, which is why investors bid the stock up by 4.08% on the Monday trading session.
Analysts on a consensus basis anticipate the company to grow its earnings by 295.3% for the 2013 fiscal year, which could be boosted even further with its recent content deal with Netflix. The company doesn’t pay out a dividend, which is a bummer for those who invest for income. On the other hand, growth investors who are solely focused on momentum should consider an investment position in the stock.
Conclusion
Netflix, Inc. (NASDAQ:NFLX) wins another round of content deals against Amazon.com, Inc. (NASDAQ:AMZN). While it is true that Amazon got a deal with Viacom, Inc. (NASDAQ:VIAB), it pales in comparison to Netflix’s string of deals, which include Walt Disney, Time Warner, and DreamWorks Animation.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation, Netflix, and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney.
The article What Is Netflix’s Market Saturation Point? originally appeared on Fool.com.
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