Little Orapeleng had gotten bigger in the year since I’d last seen him.
The summer before, my wife’s nephew had been playing with toy cars in the red African dust behind his grandmother’s house in a suburb of Pretoria, South Africa.
Now he was bugging me to look at something on his smartphone. Last year’s toys were nowhere to be seen.
Orapeleng is a few years younger than my daughter. But I assumed he was fascinated with the same things that captivated his cousin … and bored me stiff. YouTube videos of kids doing strange things, mainly.
I was on braai (barbeque) duty that Saturday afternoon, so I didn’t have time to look. But Orapeleng wouldn’t give up. So, I put down my tongs and had a look at his phone.
I peered into the tiny screen. Orapeleng had found an episode of Anthony Bourdain’s Parts Unknown where the late chef learned how to cook Polynesian delicacies over an open fire. He was excited to show me other people cooking the same way as me.
I did a double take … and not because of the fascinating island cooking style.
I was shocked to see the vector for this impromptu global cultural exchange. It was none other than Netflix.
Netflix’s Growing Global Footprint
Of all the U.S. streaming companies, Netflix Inc. (Nasdaq: NFLX) stands alone in its massive and growing global footprint.
That footprint is fast-becoming the source of the company’s long-term edge over its domestic rivals … and a potential source of profit for you.
I watched Anthony Bourdain eating Tahitian grilled pork 18 months ago in South Africa. It was then that I realized Netflix was a qualitatively different company compared to other U.S. streaming services.
The fact is that Netflix’s international subscriber base is growing far faster than its U.S. home market. As long ago as 2015, Netflix’s quarterly signups outside the U.S. were double those inside its home country:
Not All Streamers Are the Same
U.S. cable cord cutters have long chosen from amongst the streaming industry’s Big Three: Netflix, Amazon Prime Video and Hulu.
All three services carry similar content. Their price points are reasonably close. All have begun to produce original programming to attract subscribers.
But Netflix has a massive edge over Amazon and Hulu.
Consider Amazon Prime Video. Amazon is active in about 200 countries around the world. That’s a lot.
But to access Amazon Prime Video, a customer must buy the Prime delivery service. The $119 annual subscription, paid in a lump sum, is affordable only to a small minority of people in many countries.
By linking its video service to its e-commerce offerings, Amazon has limited the former’s potential in global markets.
Hulu, on the other hand, only works inside the U.S.
The service is a defensive attempt to profit from the shift to streaming in the U.S. by Disney, Twenty-First Century Fox, Comcast and AT&T. To use it, you must be inside the United States and use a U.S.-based form of payment.
That makes Netflix the only U.S. streaming service with a business model that can be exported to foreign markets … which is where future growth will come from.
Money Streaming in … From Everywhere
Netflix’s annual revenues and earnings per share have more than doubled in the last three years.
But some folks can never be satisfied. Netflix’s recent earnings report was described by the media as being “mixed” because revenue missed analysts’ estimates ($4.19 billion actual, $4.21 billion estimated). That’s even though the company reported diluted earnings of 30 cents per share, ahead of the 24 cents expected by analysts.
Netflix’s share price declined accordingly. But I guarantee that’s only a temporary blip.
The U.S. market’s reaction to Netflix’s fourth-quarter earnings report is a perfect example of the shortsighted and blinkered attitudes of many U.S. investment analysts.
Netflix added 8.8 million paid members in the fourth quarter. 83% of those new subscribers were international.
Nobody else is coming even remotely close to that level of international success.
It’s hard to disentangle the performance of Amazon’s video service from the rest of that massive operation. But on a percentage basis, Netflix shares have blown Amazon away over the last year:
Leapfrogging Its Way to Profits
In addition to its dominance in international subscribers, Netflix has also gotten the jump on its U.S. rivals in another critical aspect of video streaming: the switch to smartphones.
Netflix has invested a lot of effort into ensuring that its offerings will stream well on cellular broadband networks.
That’s critical in a country like South Africa, where access to conventional satellite-based broadcasting is regulated by the government. Existing television networks have literally bribed their way into a monopoly position.
By working hard to ensure that its offerings can bypass that mess, Netflix is already more widely available in many countries than established networks. That’s a major reason why the company is raking in millions of new international subscribers every quarter.
So, take it from my wife’s nephew Orapeleng: If you’re going to focus on a video-streaming company, ignore the shortsighted U.S. market naysayers … and make it Netflix.
Editor, The Bauman Letter