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Netflix Q1 additions impress, but its Q2 projections may be too pessimistic

Streaming video giant Netflix reached nearly 78m paying subscribers worldwide at the end of Q1 2016, a significant increase of 6.9m new subscribers over the end of the previous quarter. Much of this growth has been derived from the new international markets it added in its global launch in January. Netflix added nearly 4.6m customers outside the USA in Q1, and Ampere expects ‘International’ subscriber numbers to overtake domestic subscribers by the end of 2017.

But despite this growth, Netflix has suggested to investors that it is expecting a weak Q2 2016, with an increase of just 700,000 paid domestic subscribers and 2.3m international subscribers. But is this prediction too low?

Netflix suggests that its international forecast is low for three main reasons:

  • Last year Netflix saw a spike in international subscribers stemming from its launch in New Zealand and Australia at the end of Q1. With no new launches in 2016, it has indicated growth might slow.
  • Local language support for many of the new markets remains lacking, affecting demand.
  • Q1 was an anomaly due to the global launch, with net new subscriber growth expected to drop following the initial hype. 

Yet Netflix has a history of underestimating its international subscriber growth, with its predictions low by an average of 150,000 per quarter since Q1 2014. For Q2 2015, Netflix projected 2.2m new subscribers on a subscriber base of roughly two-thirds the size, and in far fewer markets.

As a consequence, and even considering the factors given by Netflix, we believe that it could be low with its projections for Q2 2016, and expect that at the high end, Netflix could add as many as 2.8-2.9m net new international subscribers in the period – 0.5-0.6m higher than its forecast suggests.