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Netflix’s (NASDAQ:NFLX) stock price is down about 33% from its all-time high, and is currently trading at $287. As subscriber growth in the US saturates, the company is turning to international markets for growth. India is one of the predominant markets that Netflix is hoping will drive the company’s future growth.

The Indian video streaming market is expected to grow from $700 million to $2.4 billion by 2023. In fact, Netflix‘s chief content officer, Ted Sarandos, recently stated that it seeks to find its next 100 million subscribers in India. Let’s dig deeper into Netflix’s strategies for the region and how it is performing.

Netflix

Note: Hotstar is a local video streaming service that is run by Star India, a company that is currently owned by Twenty-First Century Fox (NASDAQ:FOX), but will be sold to Disney (NYSE:DIS) as part of the $71.3 billion acquisition deal.

While Amazon (NASDAQ:AMZN) and local player “Hotstar” have a market share of 69.4% and 5% respectively, Netflix only has a 1.4% market share, which is quite concerning. Though I believe the company’s pricing strategy is to blame for this. Netflix has the most expensive pricing strategy in India, charging at least $7.30 per month.

To put this into more perspective, Amazon Prime India charges $1.90 a month, and majority of Hotstar’s streaming services are free.

Amazon Prime Video

The average cost of monthly TV cable subscription in India is less than $4. As a result, India is a very price-sensitive market, where online video streaming companies need to charge ultra low rates to entice consumers away from cable TV and subscribe to their service.

With competitors offering either free streaming or streaming at ultra cheap rates, there is little incentive for consumers to turn to Netflix from a price perspective. Neither does Netflix offer the type of additional benefits that Amazon is able to offer through its Prime subscription at only $1.90 per month.

Therefore, Netflix is genuinely price uncompetitive in India. Sarandos claimed in a recent interview that Netflix would be experimenting with different price strategies to grow its market share in India and rest of Asia.

Content is another important factor for consumers, and Netflix has certainly been spending heavily on delivering content that matches Indian consumers’ tastes, which includes the “Sacred Games” series featuring a prominent Bollywood actor. However, delivering the right content is a continuous process.

While Netflix is right in spending cash to create appealing content in an attempt to grow market share in India, it will certainly be an uphill battle to win over market share from players like Hotstar, which not only has a wealth of popular content libraries from its parent company, Star India, but is also able to offer streaming free of charge.

Hence, Netflix would have to deliver extremely popular content that surpasses the already existing local content in India to genuinely entice consumers away from nearly free streaming to pay $7.30 per month for its service. This bet seems far-fetched. Hence Netflix will certainly have to consider lowering prices for its Indian consumers if it wants to genuinely penetrate into the market.

Free Cash Flow (FCF). In an increasingly competitive industry, healthy levels of FCF are essential for two main reasons. The first is that the high levels FCF affords the company to continuously spend on new content to maintain popularity and market share in India. Secondly, abundant FCF gives a company the capacity to compete on a “price” level, whereby they can charge ultra low rates to attract customers and boost subscriber growth. The table below compares Netflix’s FCF levels with its two largest competitors in India.

Trailing Twelve Months. Amazon and Disney have abundant levels of FCF needed to engage in both content and price competition. However, Netflix is running at negative cash flow and increasingly high debt levels, which limits its financial capacity to keep delivering popular content and engage in price competition with local rivals. In fact, more competitors are looking to enter the Indian video-streaming markets including both domestic players and large tech giants like Facebook (NASDAQ:FB) and Alibaba (BABA). Hence competition will only get more intense, both on a “price” and “content” level, which will require companies to spend an increasing amount of cash flow to stay ahead.

Note: The two other companies in the table above also provide other services other than video streaming, which also drive their valuation multiples.

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Compared to its American tech giant peers, Netflix’s stock is extremely expensive based on all multiples. A Price to Earnings ratio of 105 is a hefty price to pay for a company that is not as competitively strong as Disney and Amazon in India. In fact, Disney, which will have the largest market share in the Indian video streaming market, is only priced at a Price to Earnings multiple of 14.7. Hence it might be worthwhile assessing these companies instead of Netflix for anyone that is looking to gain exposure to the video streaming market, especially in India.

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Bottom Line. Netflix is struggling in India. Its pricing strategy is certainly hurting its ability to grow market share in the country. Moreover, the company’s negative free cash flow and expensive valuation make it a less attractive stock to gain exposure to the booming video-streaming market in India in comparison to Disney and Amazon.