Netflix (NFLX +0.34%) was in a tough spot three months ago, thanks to concerns about slowing subscriber growth, but shareholders heaved a big sigh of relief after the company's third-quarter results turned out to be way better than expectations. The video-streaming specialist's latest results and outlook are evidence that the June quarter weakness was just a flash in the pan, and it won't be losing its terrific momentum anytime soon. Let's see why.
Back on track
Netflix expects to add 9.4 million new subscribers during the current quarter, up from 8.33 million additions during the same period last year. The company's international operations will drive the majority of this growth, supplying 7.6 million new subscribers this time. In fact, international subscriber growth has been the primary catalyst behind the company's consistently rising subscriber base:
Data source: Netflix's shareholder letter. Chart by author.
Clearly, Netflix's international subscriber additions are growing at a far greater pace than those in the U.S. What's more, the number of paid subscriber additions also grew at a much faster pace internationally, with the metric growing nearly 28% year over year. For comparison, paid subscriber additions in the U.S. were slightly down from the prior-year period.
This makes it clear that Netflix's international markets will be the key to its growth in the long run. However, one of them stands out in particular.
Image source: Getty Images.
The big catalyst
Netflix CEO Reed Hastings expects big things from the Indian market, believing that this country will bring the next 100 million subscribers to his company. The lack of India-specific content has been Netflix's Achilles' heel in this market, especially given the company's premium pricing. However, that seems to be changing now.
Douglas Mitchelson of Credit Suisse estimates that Netflix's mobile app downloads in India shot up 434% annually last quarter, making the country its third-largest market in terms of app downloads. Also, the number of first-time subscribers downloading the Netflix mobile app doubled annually. In fact, India is now supplying more first-time subscribers to Netflix than the combined contribution of developed countries such as the U.K., Germany, Spain, France, and Italy.
Now, Netflix's Indian mobile downloads had increased at a relatively slower pace of 191% during the second quarter of the year, indicating that customer adoption has shot up tremendously in a very short time. But why? The answer is simple: better content.
The streaming giant's first successful India-centric series -- Sacred Games -- was released in July, followed by Ghoul in August. Both these programs were critically acclaimed and were well-received by Indian viewers, making Netflix a household name in the country.
Netflix is just getting started
Netflix is finally getting its act together in India -- a limited content library had been restricting the company's growth. It's stepping up its investment in content and has drawn up a smart strategy to get into consumers' homes and smartphones by striking partnerships with telecom and cable TV providers.
For instance, Indian telecom giant Bharti Airtel is giving away three months of Netflix to some of its mobile and broadband customers for free. From the fourth month, Airtel will start charging a subscription fee and bundle the charge with the telephone or internet bill. Meanwhile, cable TV provider Hathway is integrating Netflix with its set-top box and slapping on a dedicated button to launch the Netflix app.
On the content front, the company is set to launch a new India-focused series -- Selection Day -- in December. This could bring more users into Netflix's fold, as its theme is cricket, the country's most popular sport.
Given that the company is reportedly going to invest $70 million to $80 million on India-focused content every year, it should be able to create a stream of relevant content for the market. This will be critical to its growth in India, where the competition is tremendous but the opportunity is huge.
The big opportunity
Consulting firm PricewaterhouseCoopers (PwC) estimates that the streaming content market in India could be worth more than $800 million by 2022, and there are 30 players in the running for this pie. Netflix currently occupies the No. 4 spot in India. It's making the right moves to corner a bigger share of this market for itself, which should pave the way for strong subscriber and revenue growth in the long run.
