Here's How Netflix Will Benefit From the Comcast Partnership

Comcast is teaming with Netflix to bring the streaming service to cable boxes. It hopes to add subscribers via the pact.
By Kat McKerrow ,

After years of battle of prying customers away from Comcast (CMCSA) - Get Report , Netflix (NFLX) - Get Report will partner with the cable provider.

According Recode, starting later this year, Netflix will team with Comcast. The result could be a boost to Netflix's stock.

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Netflix has faced increasing competition among streaming services and is having to fight harder than ever to grow, although it has wisely expanded overseas and developed more original programming. The Comcast pact should help the company increase its subscriptions. Investors should consider buying shares.

The stock closed Wednesday down 3%. 

The partnership should also help Comcast, which is trying to keep people from ending their cable service, a practice known as cord cutting. Under terms of the deal, Comcast subscribers will have access to Netflix programming via their television boxes and cloud services. On Wednesday, Comcast shares rose slightly. 

Netflix, along with other video streaming services such as Amazon Prime and Hulu (a combined venture of Disney, 21st-CenturyFox, and Comcast's NBCUniversal) has long been blamed for the trend of "cord cutting," in which consumers stop receiving cable television. By some estimates, as many as one in five American households have cut their cable cords, opting to watch films and videos online or through pay-per-view TV, instead.

But now select Comcast cable set-top boxes will include Netflix among their offerings.  The main benefit for Comcast is to keep viewers from cutting those cords.

Comcast is the country's largest cable provider. But it's had to rethink its business as online streaming and pay-per-view services threaten the subscription TV industry. Earlier this year, the company changed its pricing tiers, putting several networks that had been available with basic subscriptions into premium levels.

Netflix will be available on Comcast's X-1 platform, which is cloud based. Already, approximately 35% of Comcast 22.4 million subscribers use this platform. Netflix is not new to cloud TV platforms. The company's app is already available on Apple's Apple TV, for instance.

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The deal should also benefit Netflix. The company's U.S. subscriber rate is projected to grow at a slower annual rate within the next five years. However, Comcast expects growth from the cloud: About 50% of its subscribers will use X-1 by year's end. That could bring Netflix to millions more customers, curbing the online company's slowing growth rate.

Meanwhile, Netflix's overseas customer growth has been robust. The company currently has about 35 million subscribers in 200 overseas markets. In the first quarter of 2016, these markets accounted for more than 30% of Netflix's revenues. There are fears that a Brexit-caused recession in the U.K. could cut into Netflix's numbers, but the company's aggressive growth tactics should offset these negative effects.

Still, Netflix is an exciting company to own because of its growth potential. The stock price should respond accordingly. 

Now is a great time to pick up shares of Netflix at a discount.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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