Entertainment industry has undergone huge transformation since last decade and NETFLIX’s success is the proof of this evolution. NETFLIX has become very common in North America; consumers are ditching their DTH services and subscribing to NETFLIX. But surprisingly, majority of subscription of Netflix is not from North America. It has subscriber strength of 58.5 million in U.S whereas 78.6 million in rest of the world. Netflix revenue for the quarter ending December 31, 2018 was $4.187B, a 27.42% increase year-over-year. The net income for the twelve months ending December 31, 2018 was $1.211B, a 116.71% increase year-over-year but the quarterly net income declined 27.8% on year-over-year basis.
The company has gained enormous publicity worldwide(expanded over 190+ countries) but the North American giant NETFLIX is facing difficulties to get foothold in India. As per analysts India’s video streaming services market is expected to grow at $2.3 billion by 2023. But Netflix is not getting their piece of pie in this market. This is largely due to local competition and pricing issue over the other video streaming services.
Both Netflix and Amazon Prime video were launched in India in 2016. Thanks to the drastic drop in wireless data prices, these video streaming companies have grown faster in India than expected. Streaming services which were considered as luxury suddenly became more appealing to Indians. India is the second largest internet market after China that’s the reason more than 180+ video streaming services have launched in India over the past few years.
Hotstar, which streams everything from local channels to exclusives shows like Games of Thrones, is leading the market with 70% market share. Sony Liv holds 13%, Voot holds around 10%, Amazon Prime Video holds 5%(which also gives access to Amazon Prime music and Amazon Prime customer facilities), and international star Netflix has earned 1.4% share only.
Major hurdle is price sensitivity of Indian market. Hotstar offers its premium service at Rs 99/month, Amazon Prime video is offering at Rs 129/month whereas Netflix is offering at Rs 500-625/month. Hotstar also holds streaming rights of majority of IPL tournaments. Facebook had also offered $600 million to get digital rights of IPL but lost the bid to Star Network (parent company of Hotstar). Indian consumer has hunger for local content which Netflix fails to offer such local content. Netflix cameto India with a big bang, streaming their most popular exclusive shows like House of Cards & Narcos(Home production of Netflix) but failed to win the hearts of Indian consumers, but recently Netflix has brought local exclusive contents like Sacred Games, Ghoul, etc which were a big hit and this has increased their paid subscriber base in India.
But even with good quarterly result (Q4 2018), Netflix could not impress the investors and shares were down by 4% after announcement of results. Investors were expecting more than strong subscription upside. The company expects domestic and international paid subscriber addition of 1.6 million and 7.3 million in first quarter of 2019. We see 20% upside over next 12 months using a long term earnings valuation framework and subscriptions are expected to reach around 300 million by 2026 end. So the market price can be estimated around $700 by 2025(Current Market Price on 13 February $359.97). Netflix’s growth story is incomplete without its viewers and its future depends only on Consumers’ gratification.
The Financial Book 