Financial Performance

Netflix Adds 8.8 Million Subscribers in Q4

The company's shares fell 3.8% on its earnings report but it is now "approaching 50% penetration of U.S. TV households."
Matthew HellerJanuary 18, 2019
Netflix Adds 8.8 Million Subscribers in Q4

Netflix posted a second straight quarter of strong subscriber growth on Thursday but its shares fell in extended trading as revenue missed estimates.

During the fourth quarter, the streaming service added a record 8.8 million paid memberships — 1.5 million in the U.S. and 7.3 million internationally. Analysts had expected 7.5 million new subscribers while Netflix itself had forecast 7.6 million.

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Earnings per share of 30 cents beat estimates of 24 cents and revenue rose 27.4% to $4.19 billion. But estimates were for $4.21 billion in revenue.

In Thursday’s extended session, Netflix shares dropped 3.8% to $339.70.

“They had more net [subscriber] adds in Q4 this year than they had last year, they’re now approaching 50% penetration of U.S. TV households,” Forrester analyst Jim Nail told MarketWatch. “They’re still growing faster than they did last year, and that’s pretty damn good.”

Netflix reported earnings two days after it confirmed a fee hike of $1 to $2, depending on the subscription plan. The company has been under pressure to reverse its cash drain — which increased to negative $1.3 billion in the fourth quarter — as it spends heavily on original shows.

Netflix’s long-term debt rose from about $6.5 billion at the beginning of 2018 to about $10.4 billion by year’s end.

“Our multiyear plan is to keep significantly growing our content while increasing our revenue faster to expand out operating margins,” Netflix said Thursday in a letter to shareholders. Operating margin decreased to 5.2% in the fourth quarter from 7.5% the year before but Spencer Neumann, the company’s new CFO, said it is targeting an operating margin of 13% this year.

“This is a business with characteristics that certainly allow for very healthy operating margins going forward,” he told analysts in an earnings call.

For the current quarter, when prices will increase for new customers, Netflix predicts 8.9 million new paid customers, higher than analyst expectations heading into the report of about 7.8 million on average.

“As a result of our success with original content, we’re becoming less focused on 2nd run programming,” Netflix said.