Netflix Reports Its Strongest Subscriber Growth in History

Reed Hastings - H - 2016

The streaming giant now has 93.8 milion members.

Netflix added more subscribers during the fourth quarter last year than any other quarter in its history as a streaming video provider.

The company grew its subscriber base by 7.05 million members during the period, bringing its total membership to 93.8 million. The company also saw its largest year of growth in its history, setting a new benchmark during a year in which it expanded into 170 new territories. 

Netflix stock is soaring more than 8 percent on the news, reported after-hours on Wednesday.  

The fourth quarter — which included the release of big-budget drama The Crown as well as sleeper series The OA — saw the addition of 1.93 million subscribers in the U.S. and 5.12 million subscribers internationally during the fourth quarter. Wall Street predicted that Netflix would add 1.38 million subscribers in the U.S. and 3.78 million subscribers internationally. 

But CEO Reed Hastings, speaking on a conference call with investors, downplayed the spike in sign-ups, noting that when looking at subscriber gains over a yearlong period, growth has been consistent. "The big picture is remarkably steady," he added. 

Hastings' comments support Netflix's larger message that, even one year after its global rollout, the company has much to do to penetrate newer international markets, including launching localized programming in those regions. It's a strategy that the exec referred to on the call as "lather, rinse, repeat." 

Netflix brought in $2.35 billion during the fourth quarter and reported earnings of 15 cents per share. Analysts were expecting revenue of $2.47 billion and earnings of 13 cents per share. 

The company continues to spend big on original and exclusive programming — content chief Ted Sarandos said its budget would be around $6 billion this year, up from $5 billion in 2016. The latest example is Netflix's Tuesday announcement that it has lured comedian Jerry Seinfeld away from Sony-owned Crackle in a deal for new and existing episodes of Comedians in Cars Getting Coffee as well as two stand-up specials. The streamer paid a reported $40 million for two specials from Chris Rock last year, indicating that it also has made a significant investment in Seinfeld. 

Sarandos noted during the call that Netflix's comedy push in recent years has moved the genre from "cheap, second-window programming" to "an event and acquisition driver." 

Although Netflix continues to hold its viewership data close to the vest, the company did reveal that its Gilmore Girls revival, which also launched during the fourth quarter, debuted in the top 10 in every territory. 

Internationally, Brazilian original 3% was one of the most watched originals in that country. Netflix also says "millions of U.S. members" have watched the show with English dubbing and subtitles. 

Investors are especially focused on Netflix's international growth. As it reaches near-saturation of the U.S. market, its adoption in global markets is key to continued growth and its ability to keep pace with its mounting programming costs. 

That concern is highlighted by Netflix's forecast for the first quarter of 2017, in which it expects a year-over-year decline in net additions both domestically and internationally. Netflix said it is projecting the addition of 5.2 million subscriptions during the first quarter, broken down into 1.5 million adds in the U.S. and 3.7 million internationally. 

Netflix also is wading into the net neutrality debate once again, with Hastings writing in his investor note that "strong net neutrality is important to support innovation and small firms. … We hope the new U.S. administration and Congress will recognize that keeping the network neutral drives job growth and innovation." 

When it comes to competition, which Netflix faces from many technology and media firms, Hastings wrote, "It's becoming an internet TV world, which presents both challenges and opportunities for Netflix as we strive to earn screen time." The company also noted that it expects HBO to begin launching "bingeable" seasons of its programming in the near future, something the BBC has started offering. 

Shares closed the day up less than 1 percent, to $133.26. After-hours, its share price was up over $144.