It seems the only thing predictable about Netflix’s subscriber growth these days is its unpredictability. After badly missing its target subscriber additions both domestically and internationally in Q2 ’16, yesterday’s Q3 ’16 earnings report showed Netflix beating its Q3 forecast, including by a huge amount in international. Domestically, Netflix added 370K subscribers vs. its forecast of 300K, while internationally it added 3.2 million, well ahead of the 2 million it forecast.
Netflix insists that its public forecasts are the exact same ones it uses internally, so the risk of management sandbagging to exceed expectations seems relatively low. Rather, it appears that in international in particular, where the company expanded to 130 new markets in January, it’s still hard for management to get a handle on what growth will look like.
Regardless, the international subscriber beat is a clear positive for the company’s all-important international initiative, coming on the heels of the bizarre Q2 underperformance. As usual, Netflix was relatively vague about what drove the improvements, citing only the “impact of our originals” and in the U.S. the wrapping up of its price increases to previously grandfathered subscribers.
Netflix has made no secret of international expansion being its top priority, as domestic growth continues to track lower vs. prior years. The 370K Q3 ’16 additions were the lowest in years, down from 880K in Q3 ’15, 980K in Q3 ’14 and 1.29 million in Q3 ’13. As I wrote in my review of Q2 ’16 results, at this point, there’s no question that the U.S. SVOD market is becoming saturated and other services (mainly Amazon and Hulu) are having a competitive impact on Netflix.
Competition from both are only going to intensify in 2017 as Amazon continues rolling out its “Channels” program (previously known as the Streaming Partners Program, which currently includes access to 75 third-party SVOD services) and Hulu launches its skinny bundle, which could augment is current SVOD service.
Nonetheless, Netflix issued a relatively optimistic Q4 domestic forecast of 1.45 million subscriber adds, only slightly below the 1.56 million it added in Q4 ’15. Similarly, it projected 3.75 million adds internationally in Q4, vs. the 4.04 million subscribers added in Q4 ’15.