23 Jan Netflix Continues Landing Customers, Even After Increasing Prices
Netflix said Monday it would spend $7.5 billion to $8 billion on content this year.
Netflix Inc. continued its blistering growth in the fourth quarter, as mounting investments in original shows like “Stranger Things” and movies like “Bright” helped the streaming service sign up subscribers at a record rate.
The company added 8.3 million streaming users—the most it has ever gained in a quarter—exceeding the 6.3 million net additions it had projected. The growth in the U.S. and internationally brought its total paid subscriber count to 110.6 million at the end of the fourth quarter.
The results showed Netflix can continue to grow its customer ranks despite price increases in the U.S. and rising competition for viewers and programming from rival streaming services. Netflix shares gained 9% after hours, pushing the company’s market capitalization above $100 billion.
In a letter to shareholders, Netflix acknowledged the emergence of more premium video content from technology companies like Amazon.com Inc. and Apple Inc., ad-supported platforms such as Facebook and Google’s YouTube, and entertainment companies like Walt Disney Co. , which underscored its direct-to-consumer ambitions when it agreed to purchase most of 21st Century Fox for $52.4 billion.
“The market for entertainment time is vast and can support many successful services,” the company said in the letter. “Entertainment services are often complementary given their unique content offerings.”
The expansion of direct-to-consumer video gave viewers an all-time high of 487 scripted shows across streaming and traditional TV in 2017, according to research from FX Networks.
Los Gatos, Calif.-based Netflix has been spending heavily on original programs to attract new subscribers. Netflix said Monday it would spend $7.5 billion to $8 billion on content this year, up from a forecast of $7 billion to $8 billion previously, far outstripping investments from rivals including Hulu, Amazon and HBO.
And Netflix Chief Executive Reed Hastings said on the company’s earnings call that content costs will continue to rise in 2019 and 2020.
Netflix said it now has $17.7 billion in streaming-content obligations, a measure of current and future costs for content acquisition, licensing and production.
In a rare move, the company took a $39 million noncash charge in the fourth quarter on content it decided not to release, which Chief Financial Officer David Wells said was “related to the societal reset around sexual harassment.” Last year, Netflix cut ties with actor Kevin Spacey after he was accused of sexual harassment, and the streaming service said it would bring the hit drama “House of Cards” back for one final season without Mr. Spacey.
Netflix also said it would boost its spending on technology and increase its marketing budget to $2 billion this year from $1.3 billion.
The cable industry is undergoing a major transformation, as more Americans cut the cord on their cable subscriptions and flock to streaming services like Hulu and Netflix. So how did we get here? Illustration: Shaumbe Wright/WSJ
The increased spending comes with a trade-off, as Netflix blew through $2 billion more in cash than it brought in last year, and this year the company projects negative free cash flow of $3 billion to $4 billion. But the company said Monday that rising operating profits and slowing growth in original content spending will eventually lead to positive free cash flow.
“They are spending more on content and burning more cash,” Anthony DiClemente, internet analyst at Evercore ISI, said. “However, as long as the revenue growth is accelerating and the net subscriber additions continue, investors will look past the spending.”
Netflix shares set a record closing price on Monday at $227.58, about 227 times earnings.
The company added 6.36 million foreign subscribers in the quarter, compared with its forecast of 5.05 million. It added 1.98 million U.S. subscribers, compared with its outlook for 1.25 million.
Netflix expects the growth to continue in the current quarter, projecting net additions of 1.45 million U.S. subscribers and 4.9 million international customers.
Netflix has increased its international investments in recent years. More than half of its total subscribers are from countries outside the U.S. and it plans over 30 international-focused original series this year, including in France, Poland, India and Korea. Monday, the company said the international segment contributed positively to the company’s full-year profit for the first time.
Netflix said revenue increased 33% to $3.29 billion in its fourth quarter, above analysts’ estimates.
Net income came in at $185.5 million, or 41 cents a share, compared with $66.7 million, or 15 cents a share, in the year-earlier quarter.
Analysts surveyed by Thomson Reuters had expected earnings of 41 cents a share on $3.28 billion in revenue.
Write to Austen Hufford at email@example.com
Appeared in the January 23, 2018, print edition as ‘Netflix Flexes Muscles in Streaming.’