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A Look at Netflix’s Q2 2018 International Revenue Guidance

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Outlook

Netflix (NFLX) appears optimistic about its international revenue growth. The video streaming giant expects its second-quarter revenues to reach ~$1.9 billion. The growth of its international membership has been supported by the ongoing launch of local original content targeting non-English-speaking viewers. 

This growth has resulted in the company’s bullish outlook. The increasing penetration of high-speed Internet service, particularly in emerging countries like India, has also supported its strong revenue guidance.

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The graph above shows that Netflix’s international revenue growth has increased decisively in the last five quarters. Its international revenues have increased at a CAGR (compound annual growth rate) of 14.2% in the last five quarters. The company’s domestic CAGR in the same period stood at 5.5%, which indicates that the company’s international growth is outpacing its domestic revenue growth.

What’s driving international growth?

Netflix’s domestic market is becoming increasingly crowded as video streaming operators like HBO (TWX) and Hulu compete for a piece of Netflix’s market share. Both Amazon Prime Video (AMZN) and Hotstar (FOXA) already have a strong customer base in India. 

To counter these threats, Netflix is also making significant investments in local content. In July, the company launched its first star-studded original TV series, Sacred Games, which was created for Indian viewers. Netflix plans to launch three more original programs as it gains traction in the Indian market. 

Netflix charges ~$10 per month for its Indian audiences compared to $2 per month charged by Amazon Prime. Despite being a late entry into the Indian market, Netflix doesn’t plan to reduce its rates.

To accommodate its European audiences, Netflix launched original shows such as The Rain in Denmark, Marseille in France, and the hit German TV series Dark. The Latin American market is crucial to Netflix, as the company conducted in-depth research to understand the region’s local tastes. Among the local TV programs, 3% in Brazil has become quite popular.

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