Netflix tops subscriber forecasts for Q4 with huge international spurt

By Jim O'Neill on Jan 19 2016 at 1:00 PM
Netflix tops subscriber forecasts for Q4 with huge international spurt

Netflix topped analyst expectations for total subscriber growth in the fourth quarter, reporting it closed the year at 74.76 million subscribers as it added a record 5.59 million subscribers.

Wall Street had expected the company to close the year at 74.3 million, with 5.15 million adds.

In a closely watched forecast, the streamer said it expects to add 6.1 million additional subscribers in Q1, topping estimates of more than 5 million.

Netflix delivered 1.56 million domestic adds, just missing analysts’ expected 1.62 million new subs in the U.S. But it blew international forecasts away, even before the deployment in January to 130 new countries, adding more than 4.04 million subscribers.

CFO David Wells, in an interview following the earnings release, cited the law of large numbers as one reason growth could get more difficult:

“The next 50 million are a little harder than the first 50 million in terms of growth,” he said.

Analysts expect the company to report revenue of $1.83 billion – it missed by just $10 million – but the company reported 7 cents EPS, beating Wall Street’s 2 cent per share expectation. A year ago it had revenues of $1.48 billion and EPS of 10 cents.

In its letter to shareholders, the company said that it stayed profitable in Q4 despite foreign exchange headwinds, and delivered operating income of $60 million and net income of $43 million. It said it expected similar modest operating income results for Q1, assuming current foreign exchange, as it invest in its massive international expansion.

In September, it launched in Japan, followed by Spain, Portugal and Italy in October; that resulted in an international contribution loss of $109 million in Q4, up sequentially. Netflix said it expects Q1 international losses of about $114 million.

Netflix has 31 new originals planned for this year, new kids programming, comedy shows and documentaries, not to mention feature films.

In all, it’s counting on the 600 hours of fresh programming to lure – and keep – new subscribers.

And, the company said, it expects the content – like House of Cards, Jessica Jones, How to make a Murder and  Orange is the New Black -- to be hits globally.

“We’re seeing some of our new shows emerging (like Making a Murderer) as a big hit around the world for us,” said CEO Reed Hastings. “You kind of expect Jessica Jones to carry, but the more unusual titles also are performing.”

As to the expansion around the globe, Hastings said the company was seeing consistent growth in all markets.

“What we’ve seen in market after market is this building of momentum as we do more and more local content,” he said. And, he noted, despite the United Kingdom developing into a strong market for the country, it wasn’t always so.

“Our first year in the U.K. was a really tough market,” he said. Now, it’s “very successful for us… but its not like it always was.”

Hastings said markets in which the language of the content was a match for the local language, either spoken or subtitled, Netflix has seen stronger subscriber growth.

In Russia, Poland and Central and Eastern Europe, countries where content isonly in English, the potential for growth is huge, Hastings said.

“We have tremendous potential growth ahead of us,” he said. “A lot of hard execution, but the market potential is quite large.”

Chief Content Officer Ted Sarandos was also asked whether he bought into the rhetoric that competing content owners – like Time Warner, CBS, NBC and the like – would begin to pull back on making content available to Netflix.

“This is still a very competitive business,” he said. Content owners “sell to the highest bidder. If we’re the highest bidder, we’ll get the content.”

And, he said, those discussions have not impacted Netflix’s plans to spend $5 billion in content in 2016.

“We’ve been on a trajectory to accelerate our original programming,” Sarandos said. And, it would continue even if content for sale remained plentiful as it helps to set Netflix apart from other SVOD services.

“In a single quarter we’re releasing more programming than networks release in a year,” he said.

Earlier, in a letter to shareholders, Hastings addressed a comment from NBC exec Alan Wurtzel, who said that after consumers binge on highly-promoted episodes of Netflix Originals like Orange is the New Black, “Everyone goes back to watching TV like God intended.”

Hastings said, “The growth of Netflix has created some anxiety among TV networks and calls to be fearful… Our investors are not as sure of God’s intentions for TV, and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years.”

Stay tuned.

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