Netflix (NFLX, Financial) is on the verge of a major milestone, and if things go according to plan, the second half of the year should see the company’s International subscriber count surpass U.S. numbers.
Netflix, which launched its video streaming service in January 2007, has taken only 10 years to get close to 100 million subscribers around the world. What is even more stunning is Netflix’s growth in international markets.
The company expects to reach 101.95 million members by the end of the second quarter with 51.45 million from the U.S. and 50.49 million from international markets. With international memberships growing at a much faster rate, Netflix should see its overseas subscriber count surpass U.S. numbers during the third quarter of the current fiscal.
Netflix is now available in 190 countries around the world, and the potential for expansion is quite huge. Countries like India, China and parts of Europe can keep adding millions of users every year to Netflix’s customer base. Netflix has many competitors, but none has the scale and size that Netflix does. And for most companies, streaming video is just one of the things that they do, but it’s the only thing Netflix does. The intensity of focus that brings to the equation cannot be undermined.
The reason that is important in the international context is that it will allow Netflix to funnel all the money it makes back into production and keep building its portfolio in each country in which it is present, apart from making use of its established name in the English-speaking market.
In first-quarter 2014, Netflix had 11.76 million paid international subscribers bringing in $267 million in revenues. Three years later, in first-quarter 2017, paid international subscriber count reached 44.99 million, pushing revenue to $1.046 billion. Companies struggle to make money when they step into the developing world because an average user in a country like India and China will never match the paying power of an average user in the U.S., Canada, the U.K. and similar developed markets.
Take Facebook (FB, Financial), for example: Average revenue per user (ARPU) in the U.S. and Canada during the most recent quarter was $17.07 while ARPU in Asia Pacific and Europe were $1.98 and $5.42. Netflix’s average revenue per U.S. subscriber, calculated by dividing U.S. revenues ($1,470 million) by total paid subscribers (49.38 million) was approximately $29.76 while average revenue per International user was approximately $23.24.
That clearly showcases the strong product offering that Netflix has built and the bandwidth Netflix has if it wants to push toward increasing its user base in international markets. The fact that Netflix generates more revenues per user in emerging markets – in comparison with other media and Internet companies – means that it can invest even more toward building out its content offering in these markets.
Looking at it from another perspective, growth at home sustains more content creation for core markets while growth overseas – with strong ARPUs – allows Netflix to create more localized and regional content specific to those markets.
With nearly 45 million paid international subscribers, Netflix already has a significant head start in international markets. The more money it makes, the more it will invest, and the more it invests in its business, the better its product will become, adding even more users to its fold.
Considering the potential market for Netflix, it should be able to show sustainable growth for several more years to come.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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