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Netflix is banking on India to turn subscriber numbers around

JP Mangalindan
Chief Tech Correspondent

Update: On Tuesday, Netflix reported earnings that exceeded Wall Street expectations — bringing in 6.4 million subscribers and beating its own guidance of 5 million total member additions for the quarter. 

This article was originally published on Monday, Oct. 15.

Netflix (NFLX) posted disappointing user growth for the second quarter, but analysts expect the streaming giant to announce a rebound on Tuesday when it reports third-quarter earnings after the markets close, partly due to growth in India.

According to third-party estimates, Netflix saw huge subscriber growth during the period in India, one of Netflix’s bright spots. Credit Suisse analyst Douglas Mitchelson says the streaming giant saw a 434% increase year-over-year in mobile app downloads — a measurement he used as a proxy for subscriber growth — from users in the country, which has over 1.3 billion residents. Where app downloads are concerned, India ranked third for market share, behind only the U.S. and Brazil; however, its market share grew more rapidly than either country during the third quarter.

“Netflix appears to be growing very strongly in India, and that growth has continued throughout 3Q18,” Mitchelson wrote in a report published earlier this week. “Netflix app downloads by first-time subscribers doubled vs. last quarter, and in absolute terms, the data suggests India is now contributing more first-time Netflix subscriber gross additions than Germany, France, Spain, Italy, and the U.K. combined.”

Source: Credit Suisse

Chalk up the huge subscriber growth in India in part to it being a far less saturated market versus the U.S. Piper Jaffray senior research analyst Michael J. Olson estimates that almost 60% of all internet-connected homes in the U.S. already have a Netflix subscription versus less than 15% of households in international markets, excluding China.

The streaming giant is also catering more to Indian audiences, releasing a trio of hit titles this summer, including the horror miniseries “Ghoul,” the crime drama  “Sacred Games,” and the short-film anthology “Lust Stories,” with plans to release a major new original Indian title every month over the next 12 months.

Netflix also plans on hiring another 30 or so employees in its Mumbai offices, effectively doubling the office’s headcount in areas such as content licensing, production, marketing, legal and finance, Netflix Chief Talent Officer Jennifer Neal told the Times of India earlier this month.

While 60 or so employees is a veritable drop in the bucket given Netflix employs over 4,200 people in its Los Gatos and Los Angeles offices, its increased hiring in India indicates the company is taking the market seriously. The streaming giant also announced in August a partnership with Bharti Airtel, the second-largest telecommunications company in India, offering three free months of Netflix to new subscribers of some services.

Not a believer

A man rides his scooter past a hoardings of Netflix’s new television series “Sacred Games” in Bengaluru, India, July 11, 2018. Picture taken July 11, 2018. REUTERS/Abhishek N. Chinnappa

However, not everyone is as bullish on Netflix’s prospects in India. While Olson is optimistic that Netflix still has room to eventually raise prices on subscriber plans without irking subscribers — a move it could partly use towards bolstering its $2 billion-plus original content budget — Michael Pachter of Wedbush Securities contends the market potential in India isn’t as large as his peers might think.

“Netflix costs 800 rupees,” Pachter told Yahoo Finance. “The median per capita income in India is $625 or so, and 800 rupees is $10.85 per month. Hard to believe that there are a ton of potential customers at these prices.”

Regardless, expect Netflix management on Tuesday to highlight international growth in India, as well other international markets like Brazil, Mexico and France, which also saw a significant increase in mobile app downloads during the third quarter, according to Credit Suisse.  

But investors and analysts, in particular, will be paying close attention to the total number of subscribers Netflix added during the three-month period — a figure that has traditionally impacted the company’s stock price for better or worse. When the company posted particularly disappointing second-quarter earnings in July, for instance, Netflix stock plunged 13% in after-hours trading that day.

Regardless, many analysts are still bullish on this quarter. Wall Street analysts are generally expecting earnings-per-share of $.68 on $3.99 billion and 5.32 million total new subscribers, which is slightly more than the 5.3 million new subscribers Netflix is projecting. Meanwhile, Credit Suisse and Piper Jaffray have raised their PT for Netflix to $470.10 and $420.00, respectively.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to jpm@oath.com. Follow him on Twitter or Facebook.

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