Netflix benefitted massively as a result of the COVID-19 pandemic, but there are still some areas where it has a lot of growth potential.
Netflix (NASDAQ: NFLX) sees the Asian market as the next big frontier for on-demand streaming services. With a significant potential audience that has largely been untapped, Asia will be a key focus going forward for the company.
Overall pandemic performance
With people having to stay at home and many being out of work and school, it was unsurprising that home media companies benefited during the pandemic. Netflix subscriber numbers skyrocketed, with over 25 million new users signing up to the platform in the first half of 2020.
Growth slowed in the third quarter as the pandemic situation began to ease over the summer months in many parts of the world. Netflix has since increased the price for both its standard and premium plans for U.S. users, and it is ending free trials in the region.
The streaming service has seen its share price rise consistently during 2020, with growth of 50% year-to-date. If the company can start to infiltrate Asian markets, a lot more gains are likely to be on the way.
Netflix’s bets on Asia and the potential of the market
The streaming company is now betting big on the Asia-Pacific region, investing heavily in both licensed and original content for major markets such as India. Since the beginning of 2019, Netflix has invested about $400 million in original content for India alone. Q3 financials show that almost half of all new subscribers originated from Asia-Pacific, the largest share of any region.
Some of the challenges involved in entering this type of region include dubbing and adding subtitles for shows in the numerous different regional languages. There is also more of an emphasis on its mobile offering in this region than any others due to the high level of smartphone penetration.
This has seen the advertising of mobile-only Netflix plans in the likes of Thailand, the Philippines, Indonesia, Malaysia, and India. The price points for these plans are also aligned with the purchasing power of the average consumer in these countries. For example, the standard mobile plan in India costs 199 rupees ($2.67).
How big is the potential?
India has the second most internet users in the world, at about 570 million. This figure is also growing at 13% each year. An industry study estimates that the internet economy in Southeast Asia by 2025 will be worth $300 million. With music subscriptions and video streaming services becoming increasingly popular among young people, Netflix could get a large piece of the pie.
However, there is competition from international, regional, and local companies. Tencent’s Iflix regional service is popular, with the likes of Disney and Amazon also eying up this market. Therefore, significant investment will likely be needed by Netflix if it wants to have a big foothold in the region.
While the payoff for investors would be significant if the company succeeds, it could also suck in a lot of resources that could be used elsewhere, and there is no guarantee of success. Therefore, a lot of investors will likely take a wait-and-see approach to the matter.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.