Netflix exceeds growth forecast

Earnings, sales results top estimates as company nears 100 million subscribers

LOS GATOS — Fueled by better-than-expected growth in new memberships, Netflix reported strong fourth-quarter results Wednesday and said it will soon reach 100 million subscribers worldwide.

Netflix said it added 7.05 million subscribers in the quarter ending Dec. 31, bringing its worldwide total to 93.8 million members. Those results included 1.93 million new subscribers in the U.S., and another 5.12 million in international markets. They surpassed Netflix’s earlier forecasts that

7.05M Subscribers Netflix added in the fourth quarter 5.2M Netflix’s fourthquarter forecast for new subsciptions 93.8M Netflix’s total global membership

it would add a total of 5.2 million subscribers during the last three months of 2016.

The company thinks its growth is only going to continue, as Netflix said it expects to add another 5.2 million subscribers during its current fiscal first quarter, which would bring its worldwide total to 99 million members.

“The big picture is remarkably steady,” said Netflix Chief Executive Reed Hastings, on a conference call to talk about the company’s results. Hastings said the main factors benefiting Netflix continue to be greater adoption of internet TV viewing, the content choices Netflix offers and growing demand in overseas regions.

“Very few people people will (sign up) for Netflix just because of a single title,” Hastings said. “But there’s a cumulative effect, and demand is increasing as people get more comfortable with internet TV.”

Ted Sarandos, Netflix’s chief content officer, said the company benefited from “a powerful release slate” of original programs during the quarter, which included the release of the second season of “Narcos” and the premiere of the Marvel superhero series “Luke Cage.” Netflix’s slate of releases in the months ahead includes the fifth season of the Kevin Spacey-led political drama “House of Cards,” and, in a major coup for Netflix, the next season of Jerry Seinfeld’s “Comedians in Cars Getting Coffee.” Late Tuesday, Netflix announced that Seinfeld would bring his hit internet show over from Crackle later this year, and the comedian also would film two new stand-up specials for Netflix.

Analysts said that while Netflix does face respectable challenges from rivals like Hulu and Amazon, the company appears to have a lock on being the No. 1 choice for consumers’ internet TV viewing, especially in the U.S.

“There’s an estimated 126 million households in the U.S. and, assuming one subscription each, Netflix is now in almost 40 percent of U.S. households,” said Clement Thibault, senior analyst at Investing.com.

“This is an incredible number, and it speaks volumes about the changes in preference of the American population with regards to the way they consume content.”

Netflix also said it earned 15 cents a share, on $2.48 billion in revenue, which topped estimates of 13-cents-a-share profit on sales of $2.47 billion from analysts surveyed by Thomson Reuters.

Streaming revenue totaled $2.35 billion, while Netflix added $126.4 million from its declining DVD rental-by-mail business.

Netflix also reported an operating profit of $154 million, compared to a forecast of $125 million, and said it expects operational earnings to rise in the coming years.

Thibault said that outlook is “cause for celebration” among investors as it’s a sign that earnings appear stable.

But not all analysts were completely sold on Netflix’s numbers.

“Their subscriber additions are staggeringly impressive,” said Michael Pachter, who covers Netflix for Wedbush Securities. “And their free cash flow burn is even more staggeringly impressive. They burned $639 million in cash this quarter, which, when added to their $67 million of net income, means that they spend $100 per new subscriber (they) added.”

Netflix’s biggest expenses come from content acquisitions. The company said it expects its free cash flow spending in the first quarter to improve over its fourth-quarter figures, but it will still burn through $2 billion in cash this year.

For its first quarter, Netflix is forecasting earnings of 37 cents a share, and video-streaming revenue of $2.52 billion.

Netflix’s results and forecast impressed investors, as the company’s shares rose 8 percent in after-hours trading, to $143.95.