As Netflix predicted, it has had an underwhelming third quarter, adding 2.2 million subscribers in Q3 2020. The company warned that due to the lockdowns around the world in the beginning of the year, users who would have signed up around now had already done so. While Asia Pacific overall has been a bright spot, Netflix indicated in its letter to shareholders that it has a much longer way to go in India.

“We’re pleased with the progress we’re making in [the Asia Pacific region] and, in particular, that we’ve achieved double digit penetration of broadband homes in both South Korea and Japan,” the letter said. “While this is encouraging, we still have much work to do and we’re working hard to replicate this success in India and other countries.”

Jump-starting demand from India could be important for Netflix as growth sags in other parts of the world. As such, the company says it has “also partnered with financial institutions in India to make payment processing easier and more seamless for our members”. In addition, Netflix confirmed in the quarter’s earnings call that it is holding a two-day campaign where internet users in India can access Netflix content for free, something that was first reported by Protocol.

Notes from earnings call

  • Not paying much attention to COVID effects: Netflix isn’t paying much heed to streaming patterns during the pandemic. Co-CEO Reed Hastings said, “We try not to get overly focused on the COVID effects because they’re very one-time in nature. And by and large now engagement, churn, all of those metrics are like we would have expected from a year ago.” He added, “There was the temporary learning when there’s no sports, but it’s like, well, it’s not really that interesting [a] finding because it’s just not relevant to the world.”
  • Price increases are back on the table: Earlier in the year, Netflix said in an earnings call that it wouldn’t be considering price increases for the moment. Now that the market is stabilising again, the company may consider increases in some markets, COO Greg Peters indicated. In response to a question on recent price increases in Canada and Australia, Peters said, “If we [are able to produce more content] we feel like there is that opportunity to occasionally go back and then ask for members where we’ve delivered that extra value in those countries to pay a little bit more.”
  • Selling Netflix to India, and selling India to investors: Unlike in past quarters, India finds a prominent place in Netflix’s letter to shareholders, with a section dedicated to the market, indicating that the company hopes that investors will look to the country as a source for growth outside more mature markets in the region. With the upcoming two-day free Netflix access open for all internet users in India, it is clear that the company is stepping up its efforts to court subscribers. This is in addition to a cheaper mobile plan that costs ₹199, a Hindi user interface, and partnerships with broadband and telecom operators for carrier billing.
  • Not reliant on App Store: Netflix is currently allowed to take in-app payment from users on Android, but not on iOS. A recent Play Store policy change means that Netflix may not be able to do that anymore. Peters declined to comment on Google’s policy change, but noted that the App Store’s limitation didn’t have a major impact on Netflix’s ability to sign iPhone users up. “We’ve been signing up new members on [iOS] devices through the mobile browser, using our own payment method,” Peters said. “We’re not dependent on the app store for discovery.”
  • Subscribers added in Q3 2020: 2.2 million (67.5% down YoY), compared to 10.09 million additions in Q2
  • Revenue for Q3 2020: $6.43 billion (22.7% YoY growth)
  • Operating margin: 20.4% (~9% YoY increase)
  • Average Revenue Per Subscription for the quarter: US$32.97 (~1% increase YoY after accounting for forex impact)
  • Marketing costs: US$527.6 million (down 64% YoY)

Letter to shareholders | Transcript | Results (.xlsx)