Here's What You Need to Know About Netflix's 4th-Quarter Earnings

The online video streaming and app is elevating prices in the US by 13-18%

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Jan 18, 2019
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Netflix (NFLX, Financial) came out with its fourth quarter financial results on Jan. 17 after market close. While it recorded a earnings beat, it reported a revenue miss. However, the company provided strong subscriber forecast.

Revenue and EPS

On an adjusted basis, the company registered earnings per share of 30 cents in the fourth quarter. In fact, the media service provider’s revenue during the same period stood at $4.19 billion, which fell shy of expectations of $4.21 billion.

Subscriber growth

Netflix said that its domestic subscriber additions were 1.53 million, which was more than the 1.5 million forecasted. On the global front, the company’s subscriber additions came to 7.31 million thereby surpassing the 6.1 million expected additions.

For 2018 the company added 9 million paid subscribers for the whole year, up 33% as compared to 2017. This brought the company’s total number of paid members to 139.26 million, of which 58.5 million were in the U.S.

Going forward, the company said that it would not include free trial members while calculating net additions. Rather, it would focus more on paid memberships. Free trials made up 9 million worldwide memberships in the fourth quarter.

Slowing U.S. market

Netflix’s growth in the overseas market was pretty much overshadowed by a disappointing performance in U.S. as the company has begun preparing to hike prices by 13-18%. This is a strategic move on the part of the company to help pay its mounting programming costs so as to compete better with Amazon (AMZN, Financial), Hulu, AT&T (T, Financial) and Apple (AAPL, Financial) for exclusive series and films. But the double-digit price hike has undoubtedly slowed its growth in the U.S. market.

Netflix’s chief content officer Ted Sarandos said that the price hike would help the company to carry on "a virtuous cycle where you've got the more investment you're putting in, the more people are finding content that they love and the more they have value in the service."

Yet there is some element of risk as far as the price surge is concerned. The existing Netflix users may cancel their subscription and simultaneously discourage potential new customers from joining.

Looking ahead

The company sees revenue reaching $4.49 billion in the first quarter of 2019, with earnings per share projected at 56 cents. It also expects subscriber growth of 8.9 million, of which 1.6 million are expected to be in the U.S.

Netflix posted negative free cash flow of $1.3 billion, which brought 2018 negative free cash flow to $3 billion. As far as 2019 is concerned, the company expects free cash flow to stay at the same level, considering that it is spending more and more on content.

Also, in view of intensifying its streaming library in the global market, the company will increase it long-term debts. After reporting third-quarter earnings, the company took a loan of $2 billion for content production, acquisitions and some general corporate purposes.

Disclosure: I do not hold any position in the stocks mentioned.

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