Netflix (NFLX) Stock Takes a Beating, You’ll Never Guess Why

Netflix (NFLX) Stock has been trying to penetrate markets beyond the US to gain more ground but things are looking bleak and here’s why ...

Netflix stock

Netflix, Inc. (NASDAQ:NFLX) might be the largest distributor of online video streaming in the world but the number of subscribers no longer comes in the same size like they used to. Although Netflix covers 190 countries around the world, it was unable to break into China despite consistent efforts to negotiate with the country’s regulatory boards.

Rumors have been circulating that the online streaming giant is teaming up with Alibaba Group Holding Ltd (NYSE:BABA) to penetrate the Chinese market to counter the slowdown in the US market.

CEO Reed Hastings confirmed that the firm was in talks with Chinese regulators in hopes to bring the online streaming company to China.

“It may be soon that we have a license in China, or it may take a couple years, but we’re going to be very patient,” Hastings said at the Digital Life Design Conference in Munich, Germany, according to the Wall Street Journal. Netflix was rumored to be in talks with Alibaba to penetrate the Chinese market.

But Alibaba executives were quick to deny that the mobile commerce company is seeking an investment in Netflix, saying there was no deal made between the two firms. According to Alibaba spokesperson Bob Christie, Reuters the company is not interested in placing a bid to acquire the streaming service.

The dispelled Alibaba tie-up caused Netflix’s shares to slip.  Amid the rumor of a deal with Alibaba, the stock closed at $97.03 per share, up from Friday’s $93.77 open last Monday. Netflix’s shares are down nearly 23% in the past 12 months.

Recode Managing Editor Ed Lee told CNBC’s “Power Lunch” on Friday that a deal between the two was “very unlikely,” due to strict media censorship and regulatory issues in China.

Indeed, Netflix’s earnings, released in July, shows that it is facing a tough regulatory environment in the Chinese market and that the firm is struggling to gain traction in the country. However, Netflix is still exploring other options to expand in China.

“Since China is a great opportunity, we continue to look into China,” Ted Sarandos, Netflix’s chief content officer, said at a media event in Seoul. Apart from China, Netflix is also setting its sights on other Asian markets, particularly South Korea and Indonesia. But just like China, both countries have strict regulatory guidelines and low interest from consumers owning to the lack of local content.

According to analysts, successfully entering the Chinese market will have a “tremendous” upside for Netflix because of China’s economic power. Although the deal with Alibaba fell, Netflix is still in talks with China’s LeEco for a content agreement and a content sharing deal between the two companies for India where LeEco is planning a massive launch.

Liu Hong, co-founder and vice chairman of LeEco confirmed that the firm is currently negotiating with the online streaming firm, saying, “We are planning a very significant cooperation with Netflix. Details will be announced in the third quarter.”

Meanwhile, Netflix’s competitor Hulu has successfully closed a deal with Yahoo! (NASDAQ:YHOO) And dropped its free service.

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