What’s Driving Netflix’s International Subscribers?

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Netflix‘s (NASDAQ:NFLX) international subscribers have increased from just 500,000 in 2010 to over 30 million in 2015. The accelerated growth can be attributed to the company’s rapid expansion into new geographies. Netflix offered its services in just 40 countries back in 2013 and by the end of 2015, it had expanded into 190 countries. With good adoption in already expanded countries, and further expansion into previously untapped markets, the company can maintain the fast paced growth in its subscribers. We estimate Netflix’s number of international subscribers to increase from 30 million in 2015 to about 80 million by 2022.

Strong Adoption In Existing Markets

Netflix has mentioned to its shareholders that the markets it launched into prior to 2014 (Canada, Latin America, the UK, Ireland, the Nordic countries, and the Netherlands) became profitable on a contribution basis in Q3 2014 and they continue to grow strongly. The service has been particularly popular in Canada and the U.K. and has seen its presence grow in the Latin American region, where it had 8 million subscribers by the end of 2015. We believe these markets will continue to provide additional subscribers to Netflix, at least in the near future.

In 2012, Netflix expanded to the U.K. and Ireland, followed by launch in the Nordic countries of Norway, Sweden, Denmark, and Finland. Netflix had a successful launch in France, Germany, Austria, Switzerland, Belgium, and Luxembourg in September 2014, adding about 66 million broadband households to their addressable market. The company launched into Spain, Italy, and Portugal in October 2015. Entry into these upscale markets can keep Netflix’s international subscriber growth running, even though there is some local competition.

 

Growth In New Markets

Netflix expanded into Australia and New Zealand in March 2015. Australia, with a population of over 23 million residents and a very low pay-TV penetration at around 30%, makes a good expansion option for Netflix. In the first week of January 2016, Netflix expanded into 130 new countries and now has a presence in 190 countries. Netflix is targeting Asia in a big way and the company entered its first Asian market when it launched into Japan in September 2015. South Korea, Singapore, Hong Kong, Taiwan, and India were some of the other major markets that Netflix launched into as part of the January 2016 global launch. The one notable exception is China and the company is doing all that it can to enter this lucrative market. We believe that Netflix will eventually enter China by collaborating with a local partner. The Asia-Pacific holds a lot of promise for Netflix as the region offers a potential target market of around 280 million households (assuming one high-speed internet connection per household). We believe that Netflix will experience healthy adoption rates in the newly launched countries on the strength of its original content and its competitive pricing.

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