Investors tuned out of Netflix (NFLX 2.51%) stock on Jan. 21 after the company's Q4 2021 subscriber growth and guidance for the current quarter failed to match expectations.
Shares of the streaming giant crashed nearly 22% after the report as it became clear that the pandemic-driven push that drove impressive subscriber growth in the past couple of years is all but over. Netflix added 8.3 million paid subscribers during the quarter, missing its forecast of 8.5 million paid additions. The guidance added to the gloom, as Netflix expects to add just 2.5 million paid subscribers this quarter. Wall Street had estimated 5.8 million paid net subscriber additions.
The Q1 forecast represents a meaningful slowdown over the year-ago period's net addition of 4 million subscribers. One of the reasons why that's the case is because of Netflix's failure to step on the gas in key markets such as India.
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Netflix is stalling in India
Netflix is failing to find an extra gear to support its growth after the pandemic-driven boom. What's worse is that the company is unable to make much of a headway in nascent video streaming markets that could supercharge its growth in the long run. India is one such market where Netflix had high hopes of hitting 100 million subscribers, but it is now struggling there.
Co-CEO Reed Hastings remarked on the company's latest earnings conference call: "The great news is in every single other major market, we've got the flywheel spinning. The thing that frustrates us is why haven't we been as successful in India."
Management's frustration about India isn't surprising. It has been six years since Netflix launched in India, and the streaming service has just 5.5 million paid subscribers to show for its efforts thus far. According to third-party estimates, Netflix is way behind Disney's (DIS 0.92%) Disney+ Hotstar and Amazon's (AMZN 0.81%) Prime Video streaming service in that market, which reportedly ended 2021 with 46 million and 21.8 million subscribers, respectively.
The biggest reason why Netflix hasn't been able to lure a lot of customers in India is because of its premium pricing strategy. The streaming specialist has the highest-priced subscription plan in India, with its monthly subscription costing more than the annual subscriptions of many of its competitors. Disney+ Hotstar, for instance, is priced at 1,499 Indian rupees (roughly $20) for a year, while Amazon's Prime membership can be subscribed to for a monthly fee of 179 rupees (around $2.41).
However, consumers can get Amazon's Prime membership for cheaper if they opt for the annual plan priced at 1,499 rupees. It is worth noting that Prime members get additional benefits such as faster shipping times, access to a music streaming service, credit card rewards, and more. On the other hand, Disney+ Hotstar offers access to live sports streaming and daily soaps as well.
So both Disney and Amazon offer better value than Netflix, whose cheapest subscription plan of 149 rupees (roughly $2.00) per month offers content only in standard definition on just one smartphone or tablet. For comparison, the Disney+ Hotstar premium plan allows consumers to watch content on up to four devices, while Amazon Prime allows up to three devices to stream content simultaneously.
All of this means that Netflix continues to remain a pricier option in India as compared to its rivals, and that's despite the company's recent move of drastically lowering subscription costs. Throw in the fact that a cable TV subscription in India costs just $3 a month, and Netflix's premium price has created a serious problem for the company that could hinder its long-term growth in that market.
Hoping for a boost
India's video-streaming market is expected to grow at a terrific pace in the long run. Media Partners Asia estimates that the number of streaming video subscribers in the country could jump to 224 million by 2026 versus 102 million last year. The overall video-streaming market in India is slated to generate $18 billion in revenue by 2026.
So capturing a bigger market share in India could go a long way in boosting Netflix's subscriber and revenue growth, which explains why the company is willing to compromise on pricing. COO Greg Peters remarked on the conference call that even though the reduction in prices in India would lead to lower average revenue per user, Netflix believes that it can "make it up in more subscriber adds."
As a result, it won't be surprising to see Netflix introducing further price cuts in India so that it doesn't miss out on the market's massive growth. A step like that could help the streaming specialist to some extent in regaining its mojo and instill some confidence in investors who didn't hesitate in pressing the panic button after its latest subscriber growth estimates and quarterly guidance.
Netflix has guided for $2.86 per share in earnings this quarter on $7.9 billion in revenue. Analysts were looking for earnings of $3.45 per share on revenue of $8.1 billion. That bottom-line forecast points toward a 24% drop in Netflix's earnings this quarter as compared to the prior-year period despite a 10% year-over-year increase in revenue.
Those numbers don't make for a good reading, which is why Netflix needs to focus on nascent video-streaming markets such as India and capture more share to supercharge its growth in the long run.
