Holy cow, we have quite the beat for Netflix.
Netflix added nearly 2 million new subscribers domestically and around 5 million subscribers internationally in the fourth quarter this year, the company said today. Wall Streets expectations for the fourth quarter fell far below that, coming in at 1.38 million and 3.78 million respectively. We’ll address the financial parts of the company further down, but the real thing to note here is that the subscriber numbers for now are what Wall Street really cares about because it represents the future growth of the company.
Drilling down further, it looks like Netflix’s international growth is showing an even stronger performance even though it’s still investing aggressively in U.S.-based original content. While the company has started aggressively expanding internationally, it still has to reconcile its domestic strategy — creating strong original content — with audiences abroad. Those audiences may have different tastes or watching patterns, but the company said the early results of its efforts are positive, referencing one of its new shows.
“Gratifyingly, our first Brazilian original series 3%, a sci-fi, post-apocalyptic thriller, premiered as one of the most watched originals in Brazil and played well throughout Latin America,” Netflix said today. “Moreover, bucking conventional wisdom, millions of US members have watched the show dubbed and subtitled into English, making 3% the first Portuguese language television show to travel meaningfully beyond Latin America and Portugal.”
But part of the challenge will also be ensuring that it has a hefty catalog of content beyond the original shows it produces, and Netflix said that it’s focusing on local content that travels across multiple regions like Japanese anime and Turkish dramas. Original shows can bring in new subscribers, but after the binging is done there has to be plenty of content that keeps those users hooked. But as more people subscribe, Netflix will have more room to build those partnerships and increasingly Netflix can’t be ignored internationally. Netflix said it would invest $6 billion in content on a P&L basis, up from $5 billion in 2016.
Netflix set itself up for a huge fourth quarter by first, earlier in the year, revising down its third-quarter subscriber growth expectations. It then, after handily beating those expectations, turned around and raised the expectations for the fourth quarter for subscribers. That first step back in expectations worried Wall Street a bit, but then the subsequent beat raised the bar for what the company expected — a breakout fourth quarter.
Indeed, signs may have pointed to that. In early December, Netflix became the top-grossing iPhone app on the App Store for the first time. While Netflix has been aggressively expanding internationally, continued slow domestic growth has been a theme for the company for the past several quarters. Netflix’s strategy has been to continually invest in new original content that’ll continue to rack up critic awards — and new domestic subscribers. Netflix also added offline viewing in the fourth quarter, which likely also helped propel usage and the popularity of the app on the App Store.
And there’s been plenty of new domestic content. Netflix has a number of new series additions to its catalogs like Luke Cage, The Crown and The OA, all of which were called out in its report as successful new additions. If it keeps bringing in new content and IP like that, it can help continue to attract new subscribers — in particular in domestic markets.
Naturally, the stock is up big, jumping more than 9%. It’s a big jump by any standards, but for reference, when Netflix last raised its expectations we saw a jump of more than 20% and billions of dollars added to the company’s value.
The holidays are always going to be a critical part of the year for companies like Netflix. People are getting new devices as gifts like phones and tablets for the holidays, and Netflix is basically a table stakes addition to all those devices. But the real highlight here is that international growth is really chugging along quite nicely after the company made a full court press by opening up to a huge number of markets abroad last year.
All that being said, there is still the looming specter of 2017 and possible change when it comes to Net Neutrality. However, Netflix says this won’t have a huge impact on its business going forward.
“Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable,” the company said in its earnings report. “On a public policy basis, however, strong net neutrality is important to support innovation and smaller firms. No one wants ISPs to decide what new and potentially disruptive services can operate over their networks, or to favor one service over another. We hope the new US administration and Congress will recognize that keeping the network neutral drives job growth and innovation.”
The company’s financial results fell slightly above what Wall Street was looking for, coming up at earnings of 15 cents per share on $2.48 billion in revenue. Analysts were looking for earnings of 14 cents per share on revenue of $2.47 billion. While 2016 was a rocky year for Netflix, the company ended on a high note.
News Credit Goes To This Website