Marking ten years in the streaming video business, Netflix catapulted past analyst expectations with its earnings report for the fourth quarter. Not only did the company exceed revenue forecasts, but it continued to add a significant number of subscribers both nationally and internationally, reaching nearly 50 million US subscribers, or almost half of US households, and 93.8 million subscribers in total.
Netflix Inc. (Nasdaq: NFLX) took in $2.48 billion in revenue in Q4 and posted earnings per share of $0.15. Analysts had pegged revenues at $2.47 billion, with an EPS number of $0.13 or $0.14. The streaming giant also generated a net income of $67 million compared to its own forecast for the quarter of $56 million. (See Netflix Soars, Says No Near-Term Price Hike.)
Equally important, Netflix posted customer additions well above what it had predicted for the quarter. It added a total of 7.05 million subscribers in Q4 -- compared to a forecast of 5.2 million -- with 1.93 million coming from the US, and the other 5.12 million coming from international markets.
In after-hours trading, Netflix's stock price reached an all-time high as it soared to $146, up from $133.26 when the market closed at 4 p.m.
Significantly, Netflix is still operating a loss internationally, but the company now says it expects a slight profit from global operations in Q1. Since it then plans to plow profits back into the international business, Netflix expects to return to negative territory there in Q2. However, the company is advising that operating margins overall will rise with continued global expansion, and that it's targeting a margin of 7% in 2017, up from 4% over the past two years.
There was one note of caution from Netflix CEO Reed Hastings as he responded to a question on how his company competes with cable.
"In terms of getting to a full one-to-one tie ratio with today's cable," said Hastings, referring to the cable industry's penetration of US households, "that includes a lot of sports, which we don't have plans for."
However, Hastings has remained consistently bullish on the prospects for Internet video as a whole. And while Netflix may never be a leader in live TV, Hastings sees viewers moving en masse in the direction of binge viewing for most video content anyway.
In a letter to investors, Netflix's leadership team pointed out that "the BBC has become the first major linear network to announce plans to go binge-first with new seasons, favoring internet over linear viewers. We presume HBO is not far behind the BBC. In short, it's becoming an internet TV world, which presents both challenges and opportunities for Netflix as we strive to earn screen time."
Among other issues addressed in the Netflix earnings report, executives gave a nod to the incoming Trump administration, stating that if Republicans repeal net neutrality it shouldn't have an adverse effect on the company's business because Netflix has grown to a formidable size. That said, Netflix still supports the law with the argument that "strong net neutrality is important to support innovation and smaller firms."
Briefly, in both the Netflix investor letter and in public statements, Hastings also talked about product and partnership announcements during the fourth quarter. In particular, Hastings mentioned the successful integration with Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s X1 platform, while suggesting that the additional distribution isn't the primary reason Netflix had such a positive Q4. "It wasn't just a Comcast story," he said. (See Comcast Binges on Netflix in New Beta.)
Referencing Netflix's launch of a new downloadable option for content, Hastings observed that the feature is "creating a big wave of customer joy." Netflix was initially lukewarm on the idea of a download-to-go function, then purported to be open to the notion, and finally launched the new feature in November. (See Netflix Queues Up Video Downloads.)
— Mari Silbey, Senior Editor, Cable/Video, Light Reading