Netflix Investors Like What They See as International Users Soar

Netflix Beats Estimates as Global Growth Soars
  • Fourth-quarter signups hit 5.6 million even as domestic slows
  • Company introduced its service to 130 new countries on Jan. 6

Netflix Inc. has long said it wants to be world’s first online TV network, and investors are looking beyond the U.S. now, too.

Netflix added 5.6 million subscribers to its online streaming service in the fourth quarter, including more than 4 million from outside the U.S., according to a company statement Tuesday. Both of those figures surpassed analysts’ forecasts, as did projections for subscriber growth in the next quarter.

The outsized international gain eased investors’ concerns about the company’s slowing domestic growth. Netflix missed its own U.S. subscriber forecast for a second straight quarter. The shares rose after the online service said it added 17 million customers in 2015, including almost 12 million overseas, and projected international growth would accelerate this year.

“The value of the stock is coming from international markets,” Mark Mahaney, an analyst with RBC Capital Markets, said in an interview. “A domestic subscriber miss two years ago would have caused the stock to trade down regardless of the international number.”

While plenty of countries now offer streaming video services -- there are eight in Spain alone, with HBO about to enter the market -- Netflix has built a reputation that’s helped it gain subscribers quickly in new markets. Viewers are eager to learn when Netflix will arrive in their countries and what programming it will provide, Chief Content Officer Ted Sarandos has said.

Netflix rose 7.7 percent to $116.21 in extended trading after results were announced. The stock gained 3.7 percent to $107.89 at the close in New York. It more than doubled last year to lead the Standard & Poor’s 500 Index.

Netflix must add customers at a steady clip to pay for its growing programming obligations, which will total $5 billion this year. Chief Executive Officer Reed Hastings has pledged material profits once the company completes the international rollout of the only global, on-demand TV network delivered over the Internet.

New Countries

On Jan. 6, service started in 130 new countries, leaving China as the last major market without Netflix. The Los Gatos, California-based company is profitable in territories where it has operated for at least a few years, Hastings has said, and the company’s margin in the U.S. continues to widen. Those profits are being spent on international expansion and programming.

Fourth-quarter net income fell 48 percent to $43.2 million, or 10 cents a share, the world’s largest paid online TV network said, the result of spending on programming and efforts to sign up new customers. Analysts were forecasting profit of 2 cents, the average of estimates compiled by Bloomberg. Sales grew 23 percent to $1.82 billion, compared with projections of $1.83 billion.

“Our growth in these new markets will unfold over many years as we improve our service,” Hastings and Chief Financial Officer David Wells said in their quarterly letter to investors. “We are starting by primarily targeting outward‐looking, affluent consumers with international credit cards and smartphones.”

To sustain U.S. subscriber growth and lure new customers outside the U.S., Netflix has been increasing its output of original series and bidding for global rights to other studios’ programs. Netflix released the Aziz Ansari comedy “Master of None” and Marvel adaptation “Jessica Jones” in the most recent quarter. It will release its first original series in French and Italian in 2016.

“We’ve just scratched the surface,” Hastings said on a call with investors. “Netflix is a tiny percentage of all video viewing today. We have tremendous growth ahead.”

In all, the company plans to produce 600 hours of original content this year, up from 450 hours in 2015. That will include new seasons of 30 or so original series, 35 new seasons of original series for kids, movies, a dozen documentaries and nine comedy stand-up comedy specials.

In the fourth quarter, domestic subscribers increased by 1.56 million. That compared with the 1.62 million average of eight estimates. In the current first quarter, Netflix expects to add 1.75 million in the U.S. and Canada. International customers grew by 4.04 million, versus the 3.5 million seen by analysts. This quarter the company forecasts the addition of 4.35 million.

Netflix is predicting first-quarter net income of $11 million, or 3 cents a share, with streaming revenue of $1.81 billion, Netflix said. The company doesn’t include its DVD by mail business in its forecast. That business contributed $151 million in revenue and $79.6 million in profit in the fourth quarter.

Analysts had forecast the company would add 5.12 million subscribers overall in the fourth quarter, reaching a total of 74.3 million. The company closed the period with 74.8 million.

(Netflix began a conference call at 5 p.m. New York time. Visit http://ir.netflix.com/events.cfm to listen.)

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