Business Report
Earnings: New shows “Stranger Things” and “Bright” help Netflix to a strong fourth quarter.
A price increase, a sexual harassment controversy and a big-budget movie that critics panned did not slow Netflix’s momentum last year.
Fueled by original productions like the second season of the “Stranger Things” series and the Will Smith sci-fi movie “Bright,” Netflix membership hit 117.5 million worldwide by the end of last year, a 35 percent increase from the year before, according to fourth-quarter earnings the Los Gatos company released Monday.
Subscriber growth, revenue and income beat the expectations of both Wall Street analysts and the company’s earlier projections.
“We had a beautiful Q4, completing a great year as Internet TV expands globally,” CEO Reed Hastings said in a letter to investors.
The quarter capped an impressive growth year for Netflix, which faces increasing competition on many fronts from companies that are trying to knock off the online juggernaut. Amazon and Hulu were already gunning for Netflix when, late last year, Disney agreed to buy a major portion of 21st Century Fox’s movie and TV business to boost previously announced plans to create rival Internet streaming services.
To meet those challenges, Hastings told investors the company plans to spend about $7.5 billion to $8 billion this year on
programming, which includes original shows and acquiring the rights to other content. He noted the company saw an average 9 percent growth in streaming hours per subscriber in 2017.
“We believe our big investments in content are paying off,” Hastings said. “Big hits like ‘13 Reasons Why,’ ‘Stranger Things’ and ‘Bright’ result from a combination of great content and great marketing.”
In an investors conference live stream, Hastings said Netflix’s programing investments will “definitely, of course, be higher in 2019 and 2020.”
Analyst Daniel Ives of GBH Insights said he “almost fell off my chair” on news that Netflix handily beat Wall Street earnings estimates in the same quarter they instituted a 10 percent price increase in the U.S. and several European countries, France, Britain and Germany.
Ives expects Netflix will add 30 million to 40 million subscribers in the next three years.
“It just speaks to why they have massive momentum internationally,” said Ives, chief strategy officer and head of technology research.
But he also called 2018 a “pivotal year” for Netflix, which must make sure it doesn’t stumble ahead of Disney’s competing Internet services.
“The big, bad wolf is Disney,” Ives said. “If there’s a worry out there, it’s that Disney and Fox can change the game.”
During the fourth quarter alone, Netflix added 8.3 million members, including nearly 2 million U.S. subscribers. The 6.36 million members added in other countries beat the 5.05 million average of analysts’ estimates.
Paid memberships total 110.64 million, including 52.8 million in the U.S. and 57.83 million internationally.
That translated to revenue of $3.29 billion, a 32 percent increase from the same quarter a year ago. The company forecast revenue of $3.7 billion for the first quarter of 2018. For the year, net income was $559 million, up from $187 million in 2016.
The banner year came despite Netflix having to fire Kevin Spacey from “House of Cards,” which was once one of Netflix’s flagship original series, after the award-winning actor was accused of sexual misconduct.
Meanwhile, the bigbudget Netflix film “Bright” garnered negative reviews from critics, who called it “embarrassing” and a “disaster.”
However, during the earnings video, Netflix Chief Content Officer Ted Sarandos said the critics were “pretty disconnected” from the commercial appeal of the film, calling it one of the “most watched” shows or movies “that we’ve ever had on Netflix.”
In fact, Netflix has approved a “Bright” sequel.
“The real driver is to make the big titles bigger,” Hastings said. “So many people are talking about ‘Bright,’ “Stranger Things” season two. What pulls in people who haven’t yet joined is all their friends are talking about the shows.”
And the company said it will invest in more than 30 original series for its international markets, including projects for France, Poland, India, Korea and Japan.
Shares rose about 3 percent to close at $227.58 on the Nasdaq stock market. Earnings were released after the market closed, and shares were up about 8 percent in extended trading.
“It just speaks to why they have massive momentum internationally.” Daniel Ives, GBH Insights