Netflix's business model: It's no house of cards

Netflix (NFLX) is killing it.

The stock soaring to all-time highs today after the video streaming service behind “House of Cards” and “Orange is the New Black” reported adding almost five million new subscribers in the first quarter, giving the company more than 60 million total.

Netflix - User Base | SoftwareInsider

Yahoo Finance’s Aaron Task says the key data point there is that Netflix picked up 2.6 million subscribers outside America.

“The bullish case for Netflix is that they’re quite mature here in the U.S. but they have a huge runway overseas,” he points out. “And the reaction of the stock tells you the bulls are saying, wow, this could be really huge even if they’re losing money overseas.”

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Task adds Netflix and its programming are really changing the viewing landscape.

“They have driven this entire industry to the whole over-the-top offerings that are out there now,” he says. “It’s because of Netflix’s success.”

But Yahoo Finance Senior Columnist Michael Santoli notes that perhaps surprisingly, those popular Netflix shows such as “Unbreakable Kimmy Schmidt” really don’t pay the bills.

“The originals get so much of the attention and it drives seasonal subscribership,” he notes. “But they’re really not a high percentage at all of hours watched.”

However, Santoli says that Netflix uses those original programs to gin up interest for the overall service. And that shows the company’s business plan is a winner.

“It’s kind of this leading edge, it keeps them current,” he explains. “So I do think ultimately if subscriber growth keeps up, the model works because they have massive content costs and all the rest.”

Santoli feels another important aspect of the Netflix plan is to remember that it’s not going to try to be everything to all people.

“The key is to seem like you can’t miss it…to seem like it has to be among the options you have on what you want to watch on a given night or weekend or whatever-- not replacing everything else,” he argues. “It just has to be part of the whole thing.”

And Santoli points out as cutting edge as Netflix and streaming video might be, the company still leans very heavily on an older technology.

“They make a huge amount of cash flow from the DVD business,” he notes. “It’s like the AOL (AOL) dial-up people-- they keep paying. It’s basically financing the entire international expansion.”