The biggest mistake Netflix bears make
Netflix (NASDAQ: NFLX) has been one of the top-performing titles of the past decade, with a 2,400% return as the company has successfully moved from DVDs by mail to a streaming giant. Still, he’s had his fair share of detractors along the way, and their complaints are familiar at this point.
Bears have long argued that Netflix’s streaming advantage will eventually be eroded by new competition, which will steal market share as they make streaming a priority. On a related note, they tend to believe that most of Netflix’s original content is mediocre, implying that the main streamer isn’t even particularly good at what they do and that they easily would. overtaken by a dedicated competitor.
Netflix faced a wave of news streaming contest in the United States as services like Disney +, Apple +, Comcast‘s Peacock, and AT&THBOMax have all entered the market within the past year. There are signs that Netflix has given up market share as it encounters new competition, although this is still the biggest chunk in what is an ever-growing pie.
But the main thing Netflix seems to miss with these arguments is that they are almost all focused on the US market, which now only accounts for around a third of Netflix’s total subscriber base. The company’s business is maturing in its home market, where more than half of all households in the country subscribe to the service, and it has already reached its target range of 60 to 90 million subscribers. Its greatest growth opportunities are abroad, and this is also where Netflix has its biggest advantage.
Signs of strength abroad
Netflix recently showed his confidence in Canada by increasing the price of monthly subscriptions for the first time in two years, increasing the price by one Canadian dollar to CAD $ 14.99 ($ 11.38) on standard plans and CAD $ 2 on plans premium at CA $ 18.99.
Netflix has dominated the Canadian market since the company has historically faced less competition north of the border, although content tastes are almost the same as in the U.S. For example, Disney’s Hulu is over ten years old. now, but never made the trip north, and is still only available in the US
According to eMarketer, 52% of Canadian households subscribe to Netflix, making it the clear leader on # 2 Amazon Premium at 25% and n ° 3 Disney + at 17%. The research firm also sees the number of Canadian viewers on Netflix increase from 14.6 million in 2019 to 18.4 million in 2024.
In Australia, meanwhile, Netflix has said it will raise prices of a similar amount on its two lower levels. Canada and Australia are among the markets most similar to the United States and they demonstrate the company’s belief that it has added value to justify the price increase. The price increases also seem to indicate that subscriber growth continued to be strong despite moderate expectations for the third quarter.
The international advantage
While competitors can level the playing field in the United States, Netflix has a huge head start over its competitors in the international market. Hulu, HBOMax, and Peacock aren’t even available outside of the US at the moment.
While Amazon Prime Video is offered worldwide, the Prime package that Americans are familiar with, which is best known for free two-day delivery, is only available in about 20 countries. So the main incentive to join the service does not exist in much of the world.
And Disney + has grown rapidly in Europe and elsewhere, but the company has currently relied almost entirely on legacy content since. The Mandalorian was his only original series to gain much attention.
On the other hand, Netflix regularly releases new local language content at a rate that its competitors are simply not equipped to match, and has generated foreign language hits like Money heist and Roma.
Despite the setbacks of the coronavirus pandemic, Netflix had restarted production on 22 shows in 11 European countries in July, and the company has never stopped in countries like South Korea. This puts Netflix in a better position than its rivals to emerge from the crisis with a steady pipeline of content, and it also doesn’t face the challenge of not being able to release movies into theaters.
Most importantly, Netflix’s strong growth overseas and the content production infrastructure it has built outside of the United States gives the company a significant advantage over its new competitors, which are just starting to emerge. develop in foreign markets. To overvalue the internal market and ignore its international potential is a mistake. This advantage is unlikely to disappear anytime soon and will drive the growth of the company over the next few years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.