Netflix reported Q2 earnings last week that apparently disappointed Wall Street, as the stock dropped around 8% in the aftermath. Here are some of the high level takeaways:

• Revenue growth of 25% year over year
• Subscriber growth of 27% year over year
• 10 million net subscriber addition for Q2, but only 2.5 million net additions forecasted for Q3
• Ted Sarandos promoted to co-CEO

That last bullet point makes me ever-so-slightly uneasy. Co-CEO arrangements seem incredibly hard to manage and despite Reed Hastings’ comments, this feels like the first step towards him eventually stepping down into a different role. It’s not a huge deal, but something has my eyebrow raised and which I will be keeping an eye on in the future.

Subscriber growth for Q2 was pretty impressive (10 million additions), but it sounds like investors were disappointed by the conservative guidance for Q3 (2.5 million additions, a significant slowdown). The low forecast doesn’t bother me much because of just how many subscribers have probably gotten pulled forward during the past two quarters. If you haven’t signed up for Netflix during a global pandemic that involves significant quarantining and social distancing measures, you probably either never will or just can’t right now due to personal finances or insufficient internet access.

Some people were interested in getting some insight into Netflix’s potential profitability this quarter considering they were expected to spend less on content costs due to COVID shutting down a lot of production. I’m less interested in that because I still see Netflix as a company in its growth phase. I am more focused on them growing that subscriber number and won’t be worried about that those earnings for years down the line.

Netflix breaks their numbers down by the following regions (year over year subscriber growth in parenthesis):

• UCAN: U.S. and Canada (10%)
• EMEA: Europe, Middle East, and Africa (39%)
• LATAM: Latin America (29%)
• APAC: Asia-Pacific (74%)

As you can see, growth in the United States and Canada is the slowest of the four regions. Netflix currently has around 1 paid subscription for every 6 people in the United States and Canada. If we assume that UCAN represents a mature and fully saturated market, then it looks like Netflix still has a lot of room to run in the other regions. Here are my estimates on their current ratio of subscriptions to total population:

• UCAN: 1:6
• EMEA: 1:33 (1:12 if you exclude Africa)
• LATAM: 1:14
• APAC: 1:150 (excluding China)

Obviously this is an overly simplistic way of looking at things considering many parts of the world don’t have the infrastructure or disposable income for a video streaming service like Netflix. Still, there’s a lot of room for growth for Netflix globally and I’m happy to see those growth rates remain high in those under-penetrated areas.

One last note: The average revenue per user (ARPU) is lower outside the UCAN region due to a number of factors, including some cheaper mobile only plans in some countries. It’ll be interesting to see if Netflix has the pricing power to increase that over time.

Overall, I remain fully confident in Netflix’s ability to beat the market over the next 3+ years. The short term might be a bit choppy with some subscribers pulled forward because of the pandemic, but Netflix is one of very few entertainment companies that can legitimately claim to have a global brand, and I expect them to only strengthen that brand going forward.