Here’s How Netflix Can Benefit From Its Deal With Comcast?

Recently, Netflix (NASDAQ:NFLX) and Comcast (NASDAQ:CMCSA) entered into an agreement under which the latter will allow Netflix in its X1 platform, making it easier for Comcast subscribers to access Netflix.  While Comcast and Netflix have not been on good terms for the past few years, this deal makes the former Netflix’s biggest cable partner in the U.S.  This deal will give Netflix access to 30% of Comcast’s video customers – more than 7 million viewers who were using X1 set top boxes as of January 2016. Comcast expects this number to reach 50% (more than 11 million) by the end of 2016. As Netflix faces tough competition in the U.S. and faces a stagnant subscriber base, this deal should fuel its customer acquisition efforts.

See our complete analysis for Netflix

Faster Subscriber Growth In The U.S.

While Netflix has nearly 50 million subscribers in the U.S., there are more than 90 million Pay-TV subscribers in the U.S., indicating Netflix’s future potential. Though the streaming service market is still at an early stage, Netflix has established itself as a strong player in this segment.  Moreover, the company is looking at newer ways to expand in the U.S.  As per our estimates, Netflix’s U.S. subscriber base will grow at a slower rate from 50 million to around 61 million by the end of our forecast period.

However, if the deal with Comcast enables Netflix to attract 50% of Comcast’s current subscribers (10 million new subscribers over the next 5-6 years)  to its service and its total number of U.S. subscribers crosses 70 million by the end of our forecast period, there can be a 10% upside to our price estimate.

Netflix is working on several initiatives to maintain a steady growth in its U.S. subscriber base, even as new strong competitors (including Amazon and YouTube) look to threaten its dominant position. Exclusive high quality content is its primary value proposition and the company seeks new partners, It recently entered into an agreement with The CW Network that allows Netflix to remain the exclusive U.S. subscription television for previous seasons of scripted series broadcast on The CW.  However an easier way of reaching new potential consumers is equally important for Netflix to grow its user base and the deal with Comcast gives it access to a huge consumer base which it can convert. We believe this deal can potentially fuel Netflix’s U.S. subscriber growth and is a positive development for its shareholders.

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