One of the so-called FAANG stocks has confirmed investor faith in their outperformance – Netflix says it added a record. 8.3 million subscribers in total in the three months to December – the highest quarter gains in its history and exceeding its own forecasts.
But such as the stockmarket reaction on Tuesday, some analysts are wondering if conditions are getting too frothy.
Netflix shares hit new record highs, up nearly 9%, and pushed the company’s market capitalisation above $US100 billion for the first time in after hours trading on Monday. The shares are already up 16.1% in the last three months as the S&P 500 index has gained 9.1%.
The shares are now up more than 30% so far in 2018, which must be starting to make investors nervous. That’s more than half the rise for all of 2017 of around 56%!
On Tuesday they ended up 14% and the market value topped $US108 billion, meaning it is now more valuable than Nike and Goldman Sachs!
Price rises in several key markets in October (the US) did not prevent Netflix from adding 1.98 million subscribers in the US and 6.36 million in the rest of the world to take its total for the fourth quarter to 117.6 million — about 2 million more than market estimates.
Netflix’s guidance for subscriber additions in the current quarter is 6.4 million, compared to 5 million added during the March quarter of last year. People are watching Netflix more – average streaming hours per membership grew 9% in 2017.
The company reported fourth-quarter net income of $US185.5 million, compared with $US67 million, a year earlier.
Revenue for the quarter rose to $US3.29 billion from $US2.48 billion in the year-ago period.
Netflix credited the strength of its original content slate, which includes popular returning titles such as The Crown, Black Mirror and Stranger Things, and new shows like the limited series Godless, Marvel’s The Punisher and Mindhunter (from director David Fincher), the latter two of which are renewed for a second season. The original film, Bright, starring Will Smith, was “a major success and drove a notable lift” in subscribers it said.
CEO Reed Hastings said Netflix would invest more aggressively in content, thanks to its booming subscriber and revenue growth.
“We’re growing faster than we expected, which allows us to invest more in original content than we had planned,” Hastings wrote. “Given our track record of content investments helping to increase growth, we are excited about the growth in future years from the increased investments we are making in original content this year.”
Hastings acknowledged the growing competition in the streaming market from tech players such as Amazon Studios — which he acknowledged is likely to land a “strong new leader” given the size of its content budget, and Apple, which is growing its programming.
“The market for entertainment time is vast and can support many successful services,” Hastings wrote in letter to investors. “In addition, entertainment services are often complementary given their unique content offerings. We believe this is largely why both we and Hulu have been able to succeed and grow.”
Netflix’s legacy DVD-by-mail business (its original business). Over the course of 2017, Netflix lost about 700,000 DVD subscribers, ending the year with 3.33 million DVD customers. That was worth $US450.5 million in revenue and about $US248 million in profit.
Those price increases mean that Netflix is now forecasting higher profits in the first quarter, after average selling prices increased by 9% in the last quarter.
Net income is likely to jump 51% $US282 million for the three months to March and operating margins are forecast to rise from 7.5% to nearly 10% this quarter.
Netflix’s first-quarter revenue forecast of $US3.69 billion, up 40%year-on-year, is also better than analysts had predicted, with subscribers growing by another 6.35 million to 124 million globally.
2017 was the first year that Netflix’s international business recorded a profit contribution.
Now for Facebook, Google(Alphabet), Amazon and Apple in the weeks to come.
