For Netflix, expanding the market now is more important than making a profit

According to foreign media reports, for companies to improve profits is a good thing, but this strategy is not suitable for Netflix. Netflix, which has won a large subscriber subscription with a hit show like Solitaire, stunted development and women's prison, is concentrating its resources on expanding the market. Netflix, which already has 28 million subscribers, has vowed to overtake HBO as the largest online media company to subscribe to subscribers across the United States. And this market-heavy, light profit development strategy is the competitor Amazon's forte.

Netflix has soared to become one of the best performing stocks in the current standard and poor 500 index (S&P). If the DVD rental and web streaming company wants to keep its stock so strong, it should learn from Amazon rather than HBO on its corporate development strategy.

In 2012, Netflix's domestic pay-for-streaming subscriptions were 22 million, up 25.5 million at the start of the year, and the latest statistics show Netflix is close to 28 million per cent. Such rapid growth has made Netflix the web streaming company that subscribers are second only to HBO. HBO currently subscribes to about 29 million subscribers in the United States. At the same time, Netflix's market share and revenue have increased markedly. In the first quarter of this year, Netflix's marginal earnings for domestic subscriptions were 20.6%, compared with a 14.3% increase in the first quarter of last year.

But MIRIAM GOTTFRIED, the Wall Street Journal columnist, Miliam Gottfried that the increase in profits is a dangerous signal for Netflix.

This may sound counterintuitive, but there is internal news that Netflix will focus on increasing the number of new subscribers as it publishes its second-quarter earnings report for 22nd this month. For Netflix, the increase in the number of subscribers is more urgent than the growth of profits. The increase in the number of subscribers means Netflix needs to make more money to buy or create new content, and a growing market share will help Netflix get more subscription fees.

Given the outstanding performance of Netflix's recent stock and the broad potential for growth, investors are likely to temporarily reduce the demand for profit growth, but only if Netflix continues to maintain a rising number of subscribers. This situation will give Netflix a clear competitive advantage. Like Amazon, it has a small margin of profit to occupy the retail sector, and has achieved very good results. Netflix's 176 earnings ratio in 2013 is close to Amazon's 200+ level.

Analysts at Jennifer Capital CMC say that Netflix's ability to do so well in equities is largely due to the Janney of Netflix's content during the late 2012 and early 2013. During that time, Netflix paid tens of millions of of dollars to Walt and Time Warner. Investors were also worried that Netflix was spending too much on content acquisitions, but it turned out that the money was really expensive, precisely because it brought the rapid growth in subscriptions.

While Netflix is often extravagantly about content acquisitions, Netflix's investment is generally cautious. It is reported that Netflix planned to increase its content and marketing spending in April this year, and that its profit growth target for the domestic streaming sector was only 1% per cent in each quarter. But in fact, the profit growth in streaming media has exceeded the original target. Netflix's profit on streaming media has averaged 1.6% per cent in the past four quarters.

Now Netflix has shifted its previous strategy in terms of content, selectively concentrating resources on a few programs and buying exclusive rights. Netflix used to be like an old-fashioned library, but it didn't keep up with the trend. In addition to acquiring good content, Netflix has a budget of 20 million dollars for original content development, the most representative of which is now the world's most popular "card house", "stunted development" and "women's prison".

In April this year, Netflix also posted a business development outlook on its own website, said Reed Hastings, chief executive of Ride Hastings, saying: "We will not and can not and Comcast (Comcast), Sky, Amazon, Apple, Google (Weibo), Microsoft, Sony and other giants compete on the breadth. We will only focus our limited resources on one area and then do our best in these areas. Our strategy will draw on Starbucks, not outlets, to learn about Southwest Airlines or HBO, not United Airlines or dish.

The development strategy for another HBO is unwise for Netflix, which now has a fairly stable subscriber population of around 29 million. If the content range overlap is high, it will be invisible to limit the potential subscriber groups of Netflix. What's more, Netflix's goal now is to increase subscribers to twice or even three times times the current number of HBO. Some experts predict that Netflix's potential user base should be a more conservative group, with a population of 43 million to 52 million users. According to Sanford C. Bernstein's survey data, 43 million of subscribers represent only 66% of Netflix's potential users, but more than twice times the number of potential users on HBO. This data is mainly about the future of American people will be able to connect to high-speed, smooth network, on the basis of computer or network television to watch Netflix's program.

To achieve this goal, Netflix will have to spend more money to build a complete content system to better attract users and to meet the different tastes of subscribers in general. In this process, the profit will certainly be impacted, this is inevitable, after all, the fish and bear cake can not be both.

Given this challenge, the growth of marginal revenue is seen as a dangerous signal. Recently, the seemingly scenic Netflix is having trouble with children's channels. In May, Netflix decided not to renew its contract with Nickelodeon's Viacom. To make up for the Viacom left in the children's show, Netflix announced a partnership with the movie animation maker DreamWorks (DreamWorks Animation SKG Inc.) in June to further increase its original content resources. In addition, Netflix is working with Time Warner's cartoon receptacle and Walt Disney Channel.

But Amazon, which has been trying to expand its market in streaming media, seized on Netflix and Viacom to split up, signing contracts with Viacom to buy hundreds of of children's programs. This February, Amazon also bought the PBS hit play "Downton Manor" exclusive right to play.

For the average company, the pursuit of profit is the right strategy, but Netflix is an exception, because for the company with unlimited potential, expanding the market and winning more users is far more important than the profits of several quarters. Only in this way can we continue to maintain the momentum of the stock.