Neflix increases due to strong subscriber growth

 

Netflix experienced a significant surge in its stock price on Tuesday, with shares soaring by 10%, following a remarkable performance in subscriber growth during the fourth quarter, which far exceeded market expectations. The streaming giant characterized the quarter as “remarkable,” as it witnessed a staggering increase of 8.3 million subscribers, surpassing market forecasts of 6.4 million. This surge in subscribers marked an 18% rise compared to the same quarter in 2016, marking the highest subscriber addition in the company’s history. Netflix attributed this achievement to the robust acquisition driven by its original content lineup and the increasing global adoption of internet-based entertainment. Global streaming revenues also displayed robust growth, increasing by 35% year-on-year. Operating income grew to $245 million, up from $154 million in the previous year. Netflix has forecasted a global net subscriber growth of 6.35 million for the current quarter, with 1.45 million new additions domestically and 4.9 million internationally. The company’s main profit metric, operating margin, has a 2018 target of 10%, showing a 300 basis points year-on-year increase.

Netflix believes that the substantial growth in subscriber numbers and a 9% rise in average streaming hours per member indicate the success of its substantial investments in content. Due to this greater-than-expected member growth, Netflix plans to allocate $7.5-$8.0 billion on content on a profit and loss basis in 2018. It also intends to increase marketing spending from about $1.3 billion to approximately $2 billion and boost technology and development investment to around $1.3 billion in 2018. In 2017, streaming revenue grew by 36% to surpass $11 billion, and the platform added 24 million new memberships during the year, compared to 19 million in 2016. Analysts have expressed optimism about Netflix’s future, and the stock’s rise on Tuesday pushed the company’s market capitalization past the $100 billion mark for the first time. “Netflix is pouring more and more money into making content, and it is directly translating into more subscribers. They see a huge opportunity, and they are moving as fast as they can to attack it,” said BTIG analyst Richard Greenfield. Andy Hargreaves of KeyBanc Capital Markets commented, “Netflix’s current growth profile suggests that it continues to accelerate away from competition, and that the power of its competitive advantages is growing.” Diluted earnings per share (EPS) for the fourth quarter of 2017 rose to $0.41, up from $0.15 in the same quarter of 2016. Netflix expects EPS to reach $0.63 for the current quarter.

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