Investors shrugged off Netflix's (NFLX 3.17%) earnings report Tuesday evening.

The stock was trading nearly flat after hours as the streaming giant beat its own subscriber guidance and analyst earnings estimates in its third-quarter earnings report; but its guidance for the fourth quarter wasn't quite enough to impress the market, as it called for 8.5 million new subscribers, the same as Q4 2020, after 4.4 million additions in the third quarter.

Netflix's shareholder letter touted the company's new content releases, including Squid Game, the surprise Korean hit that garnered 142 million views from Netflix subscribers, making it its most-watched TV show ever. The success of Squid Game underscores one of Netflix's biggest competitive advantages, and one that the market often ignores. However, management took the opportunity to hammer that competitive advantage home in the letter.

A mural showing popular Netflix shows.

Image source: Netflix.

A global powerhouse

Discussing its reach on the world, Netflix said:

La Casa de Papel was our first non-English language title to show that - with subtitling and dubbing - great stories truly can come from anywhere and be loved everywhere. We are now producing local TV and film in approximately 45 countries and have built deep relationships with creative communities around the world. While the goal of our local content executives is always to create locally authentic stories that will resonate in their country (like The Chestnut Man which we expect to be watched by approximately two thirds of our Danish members during its first four weeks), Netflix is a global, direct-to-consumer service which enables creators to reach broader audiences - and gives our members an even greater choice of stories to enjoy.

The key there is that Netflix is now producing local content in 45 countries and is building key relationships that will deliver hit content in the future. For one company to have that kind of reach, not just in distribution but in local production, is unprecedented; and Netflix's relationships with local creators and its ability to expose their work to an audience of more than 200 million is a competitive advantage. If you're an aspiring filmmaker outside of the U.S., you'll probably favor a deal with Netflix over any other platform. After all, no one else has Netflix's reach, no other company is developing local content on that level, and no other streamer can broadcast to an audience of its size.

As management notes, Squid Game is the latest example of the power of this pipeline. The dystopian Korean drama was the No. 1 show in 94 countries, and Netflix is responding to the show's popularity by developing consumer products that will hit retail shelves shortly.

Netflix's next iteration

Netflix has evolved several times over the course of its history. For its first decade, it was strictly a DVD-by-service company. It then transitioned to streaming and got into original programming, finding success in spite of plenty of skepticism at the time. With the success of shows like La Casa de PapelLupin, and Squid Game, Netflix has taken the next step in its evolution to be a truly global platform, just a little more than five years since it completed the global launch of its streaming service.

Its audience is also becoming more globally diverse. Only about one-third of its subscribers are American these days, and subscribers from the EMEA (Europe, Middle East, and Africa) region look like they will soon top the number of North American subscribers. Growth in the APAC (Asia-Pacific) region picked up and was the company's fastest-growing region in the third quarter with 2.18 million, representing half the company's total subscriber additions in the period.

In particular, over the last year, its subscriber base in the APAC region has grown by 28% to 30 million members. That's important because that region represents a huge addressable market, with large populations in countries like India, Indonesia, Japan, and South Korea, showing why Netflix's local content strategy is so valuable.

With 8.5 million subscriber additions expected in the fourth quarter, Netflix is on track for its slowest pace of growth in 2021 in at least five years, partially a function of lapping last year's pandemic boom. While that deceleration may be cause for concern, Netflix's content strategy is clearly in the right place. There's an untapped wealth of local stories waiting to be put on the global stage, and Netflix is miles ahead of the competition in finding them.