Netflix (NFLX) Inks a Major Contract, Brings Obamas On Board

Netflix NFLX has added another feather to its cap by signing a multi-year agreement with former U.S. president Barack Obama and his wife, Michelle Obama, to produce films and series’ for the streaming platform.

The Obamas will produce scripted and unscripted series, docu-series, documentaries and feature films under the Higher Ground Productions banner, Netflix announced.

Barack Obama had earlier appeared on the first episode of My Next Guest Needs No Introduction with David Letterman, which marked his first appearance on a TV talk show since he left office.

The new deal will definitely provide an impetus to Netflix’s original content expansion strategy, which has been the key growth driver. Moreover, Obamas’ choice of Netflix over Amazon, Hulu or HBO, shows the attractiveness of the streaming giant as a distribution platform.

Notably, shares of Netflix have returned 72.8% in the year-to-date period, substantially outperforming the industry’s  21% rally.

 

Focus on Providing a Competitive Moat

Netflix has been snapping up high profile talent to strengthen its content portfolio. Increasing demand for original content coupled with the company’s expansive content library is what is helping it to attract/retain subscribers.

In February, Netflix signed a five-year deal worth around $300 million with Ryan Murphy, the name behind popular series’ like American Horror Story and Glee. Reportedly, Murphy is ending his tenure with Twenty-First Century Fox FOXA, where he has been working since 2003, to join Netflix in July.

Last year, Netflix signed a contract with Shonda Rhimes, a long-time Walt Disney DIS associate, to produce original content exclusively for the platform.

With Walt Disney set to enter the streaming market in 2019, we believe these additions will help Netflix maintain its dominant market share going forward.

Moreover, competition with Apple AAPL has also intensified with Netflix’s recent announcement to cast Jennifer Aniston and American stand-up comedian Tig Notaro in a same-sex White House comedy film. Notably, in November 2017, Apple had bought two seasons of a new TV series set in the world of morning TV shows starring Jennifer Aniston and Reese Witherspoon to counter competition in the streaming market.

Aniston is also reportedly working with Adam Sandler in Netflix’s new comedy show Murder Mystery.

Netflix, Inc. Revenue (TTM)

Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote

Netflix plans to release 470 originals by 2018, which will take the total count for the year to nearly 1,000. Moreover, the company is now set to release 86 original movies in 2018 compared with 61 released in 2017.

The company is set to spend 85% of total spending on original content. Notably, the company is expected to spend $8 billion in 2018, which is anticipated to increase further to $12.2 billion in 2020.

Netflix’s whopping 7.4 million subscriber additions in the first quarter coupled with its increased focus on original content makes us highly optimistic about the company’s future prospects.

Moreover, Bank of America Merrill Lynch estimates the company's subscriber base to grow 8% annually through 2030 to 360 million.

Currently, Netflix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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