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Netflix Subscriber Growth Tops Expectations

Netflix could be hero for weary tech investors looking for spark ...

Netflix Inc. reported another quarter of blockbuster subscriber growth that exceeded its own forecast and expectations from Wall Street, illustrating the ongoing demand for a service that now reaches 125 million people globally.

Shares jumped 4.9% to $322.85 in after-hours trading, following a 1.2% decline during the regular session Monday amid concerns about whether the video-streaming company could keep its growth streak.

The video-streaming giant added 7.41 million subscribers in the first quarter, including 5.46 million internationally. Analysts expected Netflix to add a little over 6.5 million net new subscribers for the first quarter.

The company also expects to increase subscribers at a strong clip in the current quarter. Netflix forecast a net addition of 6.2 million users, compared with analysts’ expectations of 5.6 million.

Netflix has been one of the fastest-growing stocks on the market so far this year as the company blew past expectations for U.S. and international growth. The company’s shares have risen more than 60% in 2018, compared with the 0.2% increase of the S&P 500. Wall Street grew even more bullish earlier this year when Netflix demonstrated in its fourth-quarter results that it can still add domestic customers despite raising prices, a trend that continued in the first quarter.

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Netflix stock has outperformed its technology peers as investors have grown concerned about possible regulation of tech giants like Alphabet Inc.’s Google and Facebook Inc. over data privacy concerns. On the earnings call Monday, Netflix Chief Executive Reed Hastings sought to distance the subscription-supported company from other tech giants. “We’re very different from the ad-supported businesses and we’ve always been very big on protecting all of our members’ viewing,” Mr. Hastings said. “I think we’re substantially inoculated from the other issues that are happening in the industry.”

Noting that Netflix will spend more than $10 billion on content and marketing this year versus $1.3 billion on technology, Mr. Hastings said “we’re much more of a media company in that way than pure tech.”

Investors were looking to Monday’s results for evidence that the California-based company could sustain its rapid global growth as its home market matures. Netflix executives have highlighted the opportunity as equivalent to all of the broadband homes in the world outside of China—which they estimate at around 700 million, growing toward one billion. Netflix currently has 118.9 million total paid subscriptions and 125 million total memberships. The international segment now accounts for 55% of overall subscriptions and 50% of revenue.

In its domestic market, Netflix has sought deals with corporate partners to bring on more subscribers. Last week, the company announced a partnership with its former rival Comcast Corp. to bundle its service with Comcast’s cable TV and internet plans. Netflix struck a similar deal with European pay-TV operator Sky last month and has also bundled its service with wireless carrier T-Mobile.

The company has also been investing heavily in its content to lure, and keep subscribers. Netflix reiterated Monday that it expects to spend up to $8 billion on content this year, more than rivals like HBO and Amazon.com Inc. Due to its high level of upfront spending to source original content, Netflix continues to be on track to have negative free cash flow of $3 billion to $4 billion this year. It forecasted “several more years” of negative free cash flow.

Netflix will have 700 original shows and movies on the service this year, including 80 series specific to local, non-English-speaking markets.

Netflix is also continuing its aggressive hunt for top-notch talent, attracting everyone from star Hollywood creators to publicists with big paychecks. The streaming service poached “Glee” and “American Horror Story” producer Ryan Murphy from 21st Century Fox with a five-year, $300 million production agreement, in addition to wooin g Shonda Rhimes, the creator of “Scandal,” away from ABC.

But as its content ambitions have grown, the streaming service has jostled with rivals at home and abroad who worry it is upending their businesses.

Netflix is currently embroiled in a tussle with Cannes Film Festival, which announced that it won’t allow Netflix original movies to vie for the Palme d’Or, the highest prize, because Netflix’s original films don’t have theatrical distribution in France. French law requires that movies don’t appear on streaming services for 36 months after their theatrical debut—at odds with Netflix, whose entire model is to debut movies on its service for subscribers. Though Cannes executives said Netflix could premiere movies out of the competitive running, Netflix responded by pulling out of Cannes completely.

“We will continue to celebrate our films and filmmakers at other festivals around the world but unfortunately we will have to sit out Cannes for now so that our growing French membership can continue to enjoy our original films,” Netflix said in a shareholder letter Monday.

Overall for the first quarter, Netflix reported a profit of $290 million, or 64 cents a share, up from $178 million, or 40 cents a share, a year earlier. Revenue jumped 40% to $3.7 billion.

Analysts polled by Thomson Reuters had forecast earnings of 64 cents a share on $3.69 billion in revenue.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and Imani Moise at imani.moise@wsj.com

Appeared in the April 17, 2018, print edition as ‘Netflix Growth Beats Forecast.’

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