How Netflix Can Meet Its International Membership Outlook in Q3

International subscriber guidance

Netflix (NFLX) appears to be focused on its international market growth by investing in local content. Netflix expects to finish the third quarter with ~72.9 million paid members.

From the graph below, we can see the company’s strong international subscriber growth in the last five quarters. During this period, the video streaming giant added 24.9 million customers at an average of 5.0 million per quarter. Netflix ended the second quarter with ~72.8 million total international members.

How Netflix Can Meet Its International Membership Outlook in Q3

In the second quarter, Netflix added 4.5 million net members, which was well short of its 5.5 million quarterly target. The company set a third-quarter net subscriber addition target of 4.35 million.

Europe and Indian markets are key

Netflix (NFLX) is gradually moving toward the saturation level in the US market, driven by the increased availability of OTT (over-the-top) services by multiple cable and telecom players.

To mitigate competition, Netflix is shifting its focus to the international market by developing local content for these regions. In France, Netflix doubled its investment by producing 14 shows for local viewers. This year, the company has struck several content deals with Spanish broadcasters.

In the third quarter, Netflix released a variety of original shows and movies for its Indian audience. Popular TV programs such as Sacred Games and Ghoul have gained popularity in India. According to research firm Media Partners Asia, the Indian video streaming market is valued at ~$700.0 million in 2018 and is projected to reach $2.4 billion by 2023. To tap this market, the company is planning to launch more new shows, engaging popular Bollywood stars and directors.

Both Hotstar (FOXA) Amazon (AMZN) Prime have a strong presence in the Indian market, offering low-cost plans starting at ~$1.50 per month. Unlike Netflix, they lack a strong original content pipeline for the Indian market, which may give an advantage to Netflix.