Below are key drivers of Netflix's value that present opportunities for upside or downside to the current Trefis price estimate for Netflix:
Netflix's U.S. Streaming Subscribers: Currently we forecast Netflix's U.S. streaming subscriber base to increase from around 70 million in 2020 to more than 85 million by end of our forecast period. There could be more than 10% downside to our price estimate if this figure remains below 70 million instead. This could happen if the market growth for streaming slows down, and competition weighs heavy in the future. On the other hand, there could be around 10% upside to our price estimate if Netflix blows past expectations, and captures well over 100 million U.S. subscribers.
Domestic Streaming Contribution Margin: Currently we forecast this figure to rise from about 41.3% in 2019, to close to 50% by the end of our forecast period. However, there could be a downside of about 10% to our price estimate if the margin was to decline to 30%. On the other hand, there could be upside of about 10% if this figure was to increase to over 60% instead.
For additional details, select a driver above or select a division from the interactive Trefis split for Netflix at the top of the page.
Netflix offers online video streaming services to U.S. and international customers, with services available in over 190 countries. Netflix's content is available for streaming through a variety of devices such as PCs, video game consoles, TVs, and smartphones. The company has over 230 million paying subscribers globally. The company also offers DVD rentals via mail, although the revenues for the segment have been on the decline.
The majority of Netflix's value is currently hinged on its International Streaming services for the following reasons:
While streaming subscriber growth in the U.S. is expected to moderate, Netflix should see growth in international markets hold up, driven by increasing broadband and mobile device penetration globally. The company has also been increasing its investments in regional content to attract audiences. For perspective, we project that Netflix's subscriber base in international markets will grow from around 160 million in 2021 to over 230 million by 2028. On the other hand, we expect its U.S. subscriber base to rise from 73 million to just about 80 million over the same period.
Netflix’s international growth has been solid so far, as the company has rolled out its service to a number of markets. Netflix has been targeting the Asia-Pacific in a big way, and the market holds a lot of promise for Netflix. Netflix’s international subscriber base has grown from 1.9 million customers in 2011, to nearly 160 million at the end of 2021. Taking a long-term perspective, we believe that Netflix can come close to 230 million international subscribers by the end of our forecast period.
Netflix has been facing increasing competition in the streaming space from the likes of Amazon, Disney, Comcast, Paramount, and Apple, who have doubled down on content investments as they look to add new subscribers. The competition appears to be impacting Netflix's subscriber growth. For example, over 2021, Netflix added just about 18 million paid subscribers, compared to Disney+, which grew its subscriber base by almost 35 million over the year.
Netflix’s original content has improved the perception of the overall brand. The company’s original programming has garnered critical acclaim by scoring many award nominations in recent years, including House of Cards, Orange is the New Black, The Crown, the Stranger Things series, to name a few. Netflix has effectively marketed these exclusive shows to maintain its subscriber momentum.