Judging by Netflix’s December quarterly results there will be no let up in pressure on established broadcast media at home and around the world anytime soon. The shares surged to new all time highs overnight above $US144 on the news that the company had a record quarter in the three months to December 31.
Netflix blew up market forecasts for its 4th quarter, grabbing more than 7 million new subscribers in the US and around the world in what turned out to be its biggest ever quarter, and it is looking for another big quarter in the three months to March.
And there will be no taking to foot off the accelerator with plans to boost content spending 20% or by $US1 billion to $US6 billion this year, while starting to look to boost its profitability domestically in the US and internationally.
The local TV industry media, especially TV and film, can only look at Netflix’s spending plans and weep. That extra $1 billion will be more than the entire Australian media will spend on all content, especially TV and film, this year.
The company said it added 7.05 million subscribers globally in the three months to the end of December, beating its previous guidance of 5.2 million. Netflix added 1.93 million memberships in the US and 5.12 million internationally.
Netflix issued upbeat subscriber guidance for the first quarter of 2017. It said it expects to add 5.2 million subscribers in the current quarter — 1.5 million domestically in the US and 3.7 million overseas.
Revenues climbed to $US2.48 billion in the quarter while earnings grew to $US 66.75 million or 15 cents a share — up a third from 10 cents a share in the same period a year ago.
For 2016, the company generated $US8.3 billion in global streaming revenue (35% growth) and finished the year with 93.8 million members (89.9 paid memberships) on 19.0 million net additions vs. 17.4 million in 2015. There was a total of 49.43 memberships at the end of last year in the US and 44.37 million internationally.
Last year Netflix flagged ambitions to reach 100 million subscribers this year, as it expanded to more than 130 countries, and if it matches 2016’s growth, it will crack the 100 million mark mid year and top 110 million by December 31.
Netflix says it plans to spend $US6 billion on original content this year, up $US1 billion from last year, building on demand for hits such as House of Cards and The Crown. House of Cards season 5 is moved from this quarter to the June quarter, which should bring down Q1 operating costs and boost profit margins for that quarter only, Netflix said this morning.
That extra $US1 billion will see Netflix boost the 600 hours of original content of last year to more than a 1,000 hours this year (20 hours a week). This week it revealed plans to boost spending on programming like stand-up comedy specials. Netflix has locked down deals with Jerry Seinfeld, Chris Rock and Dave Chappelle in efforts to beat Time Warner’s HBO in that realm.
Besides the extra content spending and plans for more subscribers, the company made clear in its quarterly letter to shareholders that improving profitability will now assume greater importance.
"Since our global expansion is proceeding well, we intend to grow our global operating margin for many years ahead. We’ve been around a 4% annual operating margin for the past two years, and we are targeting about 7% for the full year 2017 based on current foreign exchange rates. From here, we will seek to steadily increase revenue and operating margin as we balance growth and profitability. We are in no rush to push margins up too quickly, as we want to ensure we are investing aggressively enough to continue to lead internet TV around the world.”
"We anticipate the international segment will be slightly contribution profit positive in Q1. We plan on investing over the remaining quarters of 2017 internationally and, as a result, anticipate an international contribution loss in Q2. On a full year basis, we expect international contribution loss to improve substantially year on year,” the company added in today’s letter.
