Shares in Netflix jumped 10% on Tuesday after the online streaming name massively exceeded expected growth in subscriber numbers for the fourth quarter.
Netflix described the quarter as “beautiful”, as subscriber numbers rose by 8.3 million versus market forecasts for growth of 6.4 million.
Original content boost
It was the biggest jump in subscribers in the company´s history, marking an 18% increase on the subscriber additions in the same quarter of 2016.
“This exceeded our forecast due primarily to stronger than expected acquisition fuelled by our original content slate and the ongoing global adoption of internet entertainment,” said Netflix.
Global streaming revenues grew 35% year on year, while operating income rose to $245m versus $154m in the prior year.
Netflix forecast global net subscriber growth of 6.35 million for the current quarter, comprised of 1.45 million new additions and 4.9 million internationally.
“Our primary profit metric is operating margin and we are targeting a full year 2018 target of 10%, up about 300 basis points year over year, as in the prior year,” said Netflix on the outlook.
The group added that it believed the strong growth in subscriber numbers and 9% increase in average stream hours per member showed its big investments in content were paying off.
“With greater than expected member growth (resulting in more revenue), we now plan to spend $7.5-$8.0bn on content on a P&L basis in 2018,” said Netflix.
Netlix said the success of big hits like 13 Reasons Why, Stranger Things and Bright had resulted from a combination of “great content and great marketing”.
“We’re taking marketing spend up a little faster than revenue for this year (from about $1.3B to approximately $2B) because our testing results indicate this is wise. We want great content, and we want the budget to make the hits we have really big, to drive our membership growth. We’ll grow our technology & development investment to roughly $1.3 billion in 2018,” said Netflix.
For the full year 2017, streaming revenue grew 36% to over $11bn, with 24 million new memberships over the year compared to 19 million in 2016.
The calendar year saw Netflix achieve its first full-year positive profit contribution from its international business while more than doubling operating income for the year on a global basis.
Analysts were generally upbeat on the outlook for the shares with Tuesday´s rise taking it past the $100bn market capitalisation level 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.
“Netflix's current growth profile suggests that it continues to accelerate away from competition, and that the power of its competitive advantages is growing,” said Andy Hargreaves of KeyBanc Capital Markets.
Diluted earnings per share (EPS) rose to $0.41 for the fourth quarter of 2017, up from $0.15 in the same quarter of 2016.
Netflix expects EPS to reach $0.63 for the current quarter.