Netflix adds 8.8mln subscribers in final quarter after releasing movie hits Bird Box and Roma

Netflix Inc (NASDAQ:NFLX) added 8.8 million paid subscribers in the fourth quarter as the release of original content such as Bird Box, Roma, Sex Education and You proved popular.

The number of new subscribers represented a 34% increase on the same period a year ago, bringing its total customer base to 139 million. The new subscribers included 1.53 million in the US.

However, shares fell 2.8% immediately after releasing the results on concerns about how much the company is spending on original content to fend off competition from the likes of Amazon, Apple, Hulu and HBO.  Much of the spending, which analysts estimate amounted to US$13bn last year, has been funded with debt.

Netflix said its spending is likely to increase this year.

 “Our multi-year plan is to keep significantly growing our content while increasing our revenue faster to expand our operating margins,” the company said in a letter to investors.

“Our growth is based on how good our experience is.”

Revenue misses but profit beats expectations

Revenue in the quarter rose 27% year-on-year to US$4.19bn, falling just shy of analysts’ expectations of US$4.21bn.

 Net income fell to US$133.9mln, or 30 cents a share, from 41 cents a share a year ago but this beat market forecasts of 24 cents a share.

The group said its decision to raise prices in the US and some countries in Latin America and the Caribbean, announced this week, could add some US$1bn to revenue.

READ: Netflix raises prices in US to cover soaring content costs

Netflix will also look to increase prices in other nations as currencies fluctuate. However, it warned that the price rises could fall behind exchange rate movements, hitting revenues.

More cash going out than coming in, says analyst

George Salmon, equity analyst at Hargreaves Lansdown, told investors not to be fooled by the share price reaction to Netflix’s latest numbers.

“The shares had been up by 50% since Christmas Eve, and the numbers are well ahead of the group’s guidance from its last statement in October.”

He added: “Still, despite the glowing results there is a basic anomaly in Netflix’s numbers. Accounting rules mean the group has reported a profit of US$1.6bn, but the US$13bn investment in titles like Bird Box and Narcos means on a cash basis, more is going out than coming in.”

On Netflix’s price hikes, Salmon reckons the company is still offering good value considering consumers spend on average about 10 hours per week on the service, which works out to about 25 cents per hour.

“You can only squeeze customers so far, but we think there’s a way to go before the pips squeak,” he said.

“The worry, of course, is that international bruisers like Disney and Amazon aren’t going to go down without a fight, and both have the financial clout to counterpunch pretty hard. The battle for viewers’ eyeballs is only just getting started.”

Bird Box and Roma among succesful releases

Last year Netflix particularly focused on films, including the release of Bird Box and Roma.

Bird Box, starring Sandra Bullock, had been viewed by 80 million subscribers in the four weeks since it was released over the holidays and is expected to contend for some of Hollywood’s top prizes.

Roma, from Academy Award winner Afonso Alfonso Cuarón, has been playing at cinemas since its release last October. 

Story by ProactiveInvestors