In late 2014, Netflix expanded into new markets internationally. This expansion has proved to be a positive decision in regards to subscriber growth; however, it also raises some concern. Netflix recently released its 2Q earnings for 2015 showing a jump in subscribers. Total paid subscribers increased 3.09 million, from 59.62 million in 1Q 2015 to 62.71 at the end of 2Q. Of the total number of paid subscribers, 64.5% are domestic and 35.5% are international.

In the U.S., Netflix added 740K paid subscribers, increasing from 40.32 in 1Q 2015 to 41.06 in 2Q. In addition to growing U.S. subscribers, Average Revenue per User (ARPU) grew 2%, from $24.42 in 1Q 2015 to $24.99 in 2Q.  Internationally, paid subscribers increased 2.35 million, from 19.30 million in 1Q to 21.65 million at the end of 2Q. However, unlike in the U.S., Netflix’s international ARPU is declining. In 2Q 2105, Netflix’s international ARPU fell 2% from $21.52 in Q1 2015 to $21.01 at the end of quarter two. Over the past 4 quarters Netflix’s international ARPU has had a CAGR of -3.4%.

Declining international ARPU is significant because in the long run Netflix’s international markets are going to be a bigger contributor to the growth of the company than the U.S. market is going to be. With nearly 4 out of 10 U.S households subscribing to Netflix they are close to saturation, suggesting that in the long run internationally there is much more room for growth. Although Netflix is still gaining subscribers internationally, their revenue per paying subscriber is decreasing each quarter calling into question long-term revenue growth.