India’s EROS Stock Is Not a Risk Worth Taking

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Recognizing that the future of media consumption is online, little-known Indian entertainment company Eros (NYSE:EROS) has tried to aggressively transform from an antiqued film business into a next-gen, hyper-growth streaming content business, something like the Netflix (NASDAQ:NFLX) of India.


But Eros hasn’t turned into the Netflix of India. Instead, EROS stock has plunged from $10 to $4 over the past year as the company has struggled to make this transformation for various reasons. And most of those tie back to India’s fiercely competitive streaming TV market.

Unfortunately, these competition-related struggles likely won’t end anytime soon for EROS stock.

India is just too big of a market for any streaming service to pass up on. So every streaming service in the world is going all out in India, with some of the industry’s biggest names like Netflix pledging to spend hundreds of millions of dollars on Indian streaming content development and acquisition over the next few years.

Eros doesn’t have the resources or firepower to compete with these streaming giants. As such, as opposed to sustaining its big streaming user growth trajectory over the next few years, Eros’ growth trends will likely flatten out into 2025. And as they do, EROS stock will struggle for gains.

Competition Is Heating Up

The global streaming wars will heat up in the 2020s, and a lot of the action will be centered around the largely untapped Indian streaming market.

India is the last great frontier of the digital/technology revolution outside of Africa, and it’s a very, very big frontier. The country is home to over a billion people, most of whom still aren’t connected to the internet, still don’t own a smartphone, and aren’t watching streaming services. But tech companies are rapidly investing in improving internet infrastructure and access in India. Consequently, India’s internet economy will likely grow by leaps and bounds over the next several years.

And one internet economy vertical poised for particularly big growth is streaming TV. That’s good news for Eros.

But here’s the problem: everyone else is trying to be the Netflix of India, too, including Netflix itself. Every streaming service operator in the world knows that India represents an untapped billion-person-plus opportunity for them, so they’re all aggressively pumping resources into the market to capitalize on this opportunity.

For example, Netflix has pledged to spend $400 million on content development and acquisition in India over the next two years. Eros projects its revenues to be about $200 million this year. How is Eros supposed to compete with Netflix, who can dramatically outspend Eros at every turn to create and acquire better content?

The problem is only exacerbated by the fact that India probably isn’t a multi-streaming-service-per-household market like America, given significantly lower average household incomes.

The Eros Growth Narrative Will Cool

As competition in the India streaming market heats up, the Eros growth narrative will cool off.

The logic is simple. As Netflix and Amazon (NASDAQ:AMZN) increase their content spend in India, they will inevitably develop and acquire more and better content than others in the marketplace. These more robust content libraries will attract more paying subscribers. As more subscribers flock to Netflix and Amazon, less will flock to Eros, because below-average household incomes in India imply that most households in the country will only pay for one streaming service.

Consequently, while Eros is presently adding about 2.5 million new paying subs each quarter, the pace of user growth will likely slow in the 2020s. As it does, investors will find little reason to take a bet on EROS stock, given its declining revenues, declining profits, and levered balance sheet.

Bottom Line on EROS Stock

The core idea behind EROS stock — becoming the Netflix of India — is quite attractive. But competitive challenges will ultimately prevent Eros from fulfilling that promise and meaningfully slow the company’s growth trajectory over the next few years. As this slowdown materializes, EROS stock will have a tough time moving higher.

As of this writing, Luke Lango was long NFLX.

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