Yahoo Finance How Netflix’s overseas expansion fueled its explosive growth in subscribers
Netflix (NFLX) reported its Q4 2020 earnings after the closing bell on Tuesday, blowing away analysts’ expectations by adding 8.51 million new subscribers in the quarter. And the driving force behind that expansion was Netflix’s international markets.
The company added 7.7 million new users outside of the U.S. and Canada in the quarter, with a whopping 4.46 million coming from the company’s Europe, Middle East, and Africa, or EMEA, region.
And, as Yahoo Finance’s Brian Sozzi points out, the company’s stock has skyrocketed as a result of those new subscribers. At the close of markets on Wednesday the stock was up 16.85%, closing at $586.34. This spike came despite the earnings per share for the quarter coming in $0.17 shy of expectations.
And it’s those international markets, and the content that appeals to those consumers, that analysts say will continue to push Netflix forward in the future. Shows like Germany’s “Barbarians” and South Korea’s “Sweet Home,” are driving consumers to Netflix, and even translating to hits in the U.S. The French series “Lupin” recently cracked Netflix’s Top 10 most popular shows in the U.S., topping out in the number two slot.
“We view Netflix’s original, local content as one of the key differentiators and competitive advantages, especially given the discount of international content vs. domestic content,” UBS Global Research’s Eric Sheridan wrote in a research note following Netflix’s earnings report.
Netflix’s international growth was off the charts
It makes sense that Netflix’s international growth was so much better than the company’s U.S. and Canada (UCAN) expansion. UCAN is a relatively mature market for Netflix compared to its international regions. But that doesn’t take away from how impressive those numbers were.
“Netflix continues to push for global subs with competition intensifying, but we believe the streaming landscape can support multiple players, with Netflix the industry leader,” Piper Sandler’s Yung Kim wrote in a research note.
Of course, competition is heating up for Netflix both domestically and internationally. And its surefire way of fighting back is its local content. That, the company said in its Q4 report, has proven especially helpful in drawing subscribers and keeping them hooked.
What’s more, those same shows, according to Netflix, are surprisingly successful outside of their local markets, as well.
In other words, Netflix’s international expansion strategy isn’t just helping it build out its audience in new markets — it’s also helping keep viewers interested in established ones.
Margins could expand as Netflix raises prices internationally
Netflix has proven that its formula of original and third-party content is a winner, so much so that competitors are copying it at every turn, pushing into similar international regions and offering both new original and old, fan favorite movies and shows. But the best signal that Netflix continues to deliver for consumers is that it’s able to raise prices without losing those same customers.
Netflix increased its price for its Standard plan in the U.S. from $13 to $14 and while its Premium tier increased from $16 to $18 as of October. Despite that, the company still beat expectations.
Kim says Netflix even still has room to grow with further price increases. In fact, Kim writes, a recent survey his firm conducted of 600 U.S. Netflix subscribers found that respondents were willing to pay an average of $2.20 more per to keep streaming the service.
Of course, once pandemic lockdowns ease up, Netflix will likely see its rate of new subscribers slow down. Its subscribers for 2021 could pale in comparison to the last quarter of 2020.
But Netflix is still clearly the market leader with 200 million global subscribers, easily surpassing rivals including Amazon Prime Video, which has an estimated 26 million subscribers. And if its international expansion continues, that won’t change anytime soon.
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