Mike Olson's Bullish Musings On Activision, Amazon And Netflix

Netflix, Inc. NFLX reported accelerated international expansion this quarter that Piper Jaffray analyst Mike Olson expects to allay competitive — and expense-related — fears.

Strong growth in global subscriptions has helped Netflix secure 13 percent of internet household market share outside the U.S. and China, a slight figure he said presents great opportunity to close the gap on 60-percent domestic market share.

“We continue to like Netflix,” Olson said May 2 on Benzinga’s PreMarket Prep trading show. “It’s kind of an ‘if you build it, they will come’ situation where they’re building up the content and they are coming in the form of subscribers, and that’s resulting in improving growth and ultimately improving revenue and improving contribution margin overall profitability. It’s working, the flywheel is working.”

Amazon’s $1-Billion Potential

Amazon.com, Inc. AMZN recently reported 100 million worldwide Prime subscribers, which Olson said sounds about right.

By the analyst’s estimates, that “sticky” subscriber base compounds a $20 Prime price increase and a generally higher purchase volume of Prime members relative to non-Prime shoppers to yield $1.2 billion in potentially high-margin, incremental revenue.

“Amazon obviously had a really strong quarter even with retail growth slightly decelerating. AWS and other segment revenue were extremely strong, [and] other segment revenue is primarily advertising, and that continues to be a growing business for them,” Olson said.

The Real E-Sports Winners

The “huge” phenomenon of e-sports could help bolster the bottom lines of Electronic Arts Inc. EA and Activision Blizzard, Inc. ATVI. Estimates suggest that, between sponsorship revenue, broadcast rights and other monetization methods, the business could generate more than $1 billion this year.

By Olson’s assessment, Activision’s Overwatch League alone is set to bring in about $100 million from team payments, Twitch broadcasting and sponsorships.

“It’s definitely something that is still generally immaterial to their overall business, but it’s growing and it’s certainly measurable at this point,” Olson said.