Netflix surges as earnings, subscribers grow
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Jan 19, 2016  |  Vote 0    0

Netflix surges as earnings, subscribers grow

Profit and new customers ahead of expectations, as expansion and original series add to costs


Shares in Netflix Inc. jumped Tuesday after the company reported profit and net subscriber additions ahead of expectations, although a massive overseas expansion and investment in original content continue to dampen cash flow.

The Los Gatos, Ca.-based video on demand giant said it ended the fourth quarter with 74.76 million members for more than 17 million net additions year over year. In its earnings release after markets the company forecast a better than projected six million additions in the first quarter of 2016.

Netflix added 1.56 million subscribers in U.S. in the period ended Dec. 31, just trailing predictions of 1.62 million as growth in the mature U.S. market continues to slow. Average U.S. subscriber revenue increased, however, on upgrades to the Ultra HD Plan while additions of 5.59 million new members worldwide were well ahead of forecasts.

Netflix said its streamed 42.5 billion hours of content in 2015, up from 29 billion hours in 2014.

Revenue of $1.82 billion (U.S.) was in line with projections for $1.83 billion but earnings of $43.2 million or 10 cents per share easily topped the consensus analyst estimate of two cents.

Netflix, which earned $83 million or 19 cents per share in the year earlier period, forecast a three cent per share profit in the first quarter of 2016. The company finished the fourth quarter with negative cash flow of $276 million and negative $921 million for the year, adding that it is likely to raise additional debt in late 2016 or early 2017.

Shares in Netflix jumped as much as 9 per cent immediately after the earnings release, but stabilized as the company detailed rising operating costs accompanying rapid growth.

In early January founder and CEO Reed Hastings announced a launch in 130 new countries extending the Netflix footprint to most key markets excluding China, where rollout might take longer than expected.

Hastings in a keynote at the 2016 CES conference heralded “the birth of a new global Internet TV network” but said investment in original and owned content requires more cash up front relative to licensed product.

Content acquisition chief Ted Sarandos said the company aims to focus more on family-friendly fare such as the anticipated Fuller House and wants to step up non-English language programming to expand original offerings globally.

He acknowledged that Netflix has used “shock and awe” in its bidding, but said criticism that it overspends on content fails to take into account the success of the product and subsequent return on investment.

Hastings in a webcast interview added that Netflix is stepping up the use of content blockers to keep viewers from accessing the service streamed to other countries.

He said Netflix would continue to break down borders and offer content to the broadest possible audience but said it has an “enhanced black list” of hidden proxies and other tools that allow users to view titles available outside their copyright territory.

Netflix shares have fallen almost 6 per cent since the beginning of 2016 but have more than doubled over the past year. The stock gained $7.81 after hours to $115.70.

Toronto Star

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