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Two days after announcing that the price of its most popular plan would go up by $2, Netflix revealed that it has grown its subscriber base by 8.84 million, or nearly 26 percent.
The jump, which puts it at 139 million subscribers worldwide, was a record for the streaming giant and ahead of the 7.6 million paid additions it previously forecast. Broken out, Netflix added 1.53 million subscribers in the U.S. and 7.31 million subscribers internationally. Soft growth in the U.S., where the streamer already has significant penetration and where the price hike will take effect, appears to have led investors to push Netflix’s stock down as much as 4 percent during after-hours trading.
Netflix is forecasting that it will add 8.9 million subscribers during the first three months of 2019 — 1.6 million in the U.S. and 7.3 million abroad.
Revenue for the final three months of the year was up 27 percent to $4.19 billion, a slight miss from Wall Street’s expectations, and earnings came in at 30 cents per share. Analysts were looking for revenue of $4.21 billion and earnings of 24 cents per share.
Annual revenue grew 35 percent to $16 billion during 2018 and operating profits nearly doubled to $1.6 billion.
Netflix must continue to spend big on programming to keep subscribers engaged with its service and prevent churn. The company’s annual content budget, which includes licensed and original projects, was expected to reach as much as $8 billion during 2018. Investors cheered the price increase as a sign that Netflix, which is currently burning through cash, is committing to covering those growing programming (and marketing) costs.
In a rare move for Netflix, the company on Thursday showcased just how that content spend is paying off by revealing select viewership data for shows like You (a recent pick up from Lifetime) and movies like Bird Box. While not a direct comparison to television ratings, the disclosure that, say, Sex Education is on track to be viewed in 40 million homes during its first month on Netflix, does give some indication of what is working on the platform. (Netflix’s definition of a view is someone who completed at least 70 percent of a TV episode or movie.)
Content chief Ted Sarandos explained the decision to disclose more information about viewership during Netflix’s post-earnings video interview. “I would look at it like these are less financial metrics as they are cultural metrics,” he said, adding, “What’s important is that, for part of your Netflix subscription, you’re in the zeitgeist. You’re watching the programming that the rest of the world is loving at the same time.” The exec teased that Netflix will continue to “ramp up” these kinds of disclosures going forward.
Much has been made of what will happen to the Netflix business when entertainment giants like Disney, WarnerMedia and NBCUniversal start pulling their library programming for their own streaming services. Netflix hinted at that change in its earnings report by noting, “We are ready to pay top-of-market prices for second-run content when the studios, networks and producers are willing to sell, but we are also prepared to keep our members ecstatic with our incredible original content if others choose to retain their content for their own services.”
Netflix maintains that it isn’t concerned with the growing competition from the entertainment giants. In its shareholder letter, the company noted that it earns around 10 percent of screen time in the U.S. “We compete with (and lose to) Fortnite more than HBO,” reads the letter. “When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time. Hulu is small compared to YouTube for viewing time, and they are successful in the U.S., but non-existent in Canada, which creates a comparison point: our penetration in the two countries is pretty similar.” (Hulu, it should be noted, has 25 million subscribers in the U.S., which is less than half of Netflix’s membership in the country. But it added around 7.7 million domestic subscribers during 2018 compared with Netflix’s 5.7 million.)
Netflix CEO Reed Hastings further explained that, because there are about 1 billion hours of TV content being consumed in the U.S. per day, the entrance of a new player “only makes a difference on the margin. That’s why we don’t get so focused on a competitor.”
Netflix shares closed the day up less than 1 percent to $353.19. The stock dropped more than 4 percent after-hours on the lower-than-expected subscriber growth.
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