Netflix is beating Wall Street expectations on international subscriber growth — but its recently announced price increase in the U.S. may have put a damper on its momentum in the States.
For the fourth quarter of 2018, Netflix reported 1.53 million paid net adds in the U.S. and 7.31 million internationally, to end the year with 139 million streaming members worldwide. The 8.8 million net gain was the biggest Q4 in the company’s history. Netflix had forecast Q4 U.S. net additions of 1.5 million paid streaming subscribers and 6.1 million international paid subs, with analyst expectations roughly in line.
For the current quarter, Netflix forecast 1.6 million paid net adds in the U.S. and 7.3 million internationally. That’s lower in the United States (and higher abroad) than expected: Analysts were previously modeling Q1 2019 U.S. net paid subscriber additions at about 2 million and 6.7 million overseas.
The company beat Wall Street estimates on earnings per share but fell a bit short on the top line. Netflix reported $4.187 billion in revenue for Q4 and earnings per share of 30 cents. Wall Street analyst consensus estimates had pegged sales of $4.21 billion and EPS of 24 cents for the period.
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Netflix’s stock fell as much as 4.3% in after-hours trading on the earnings.
The company reported earnings three days after raising prices of streaming plans in the U.S. and some Latin American markets — prompting the stock to jump 6.5% Tuesday, as investors enthused over the signal of Netflix’s confidence in its subscriber momentum and massive content spending. In the U.S., the Standard plan (two HD streams) is increasing from $10.99 to $12.99 per month; the Premium plan (up to four Ultra HD streams) is increasing from $13.99 to $15.99 per month; and the Basic plan (with a single non-HD stream) is increasing for the first time, from $7.99 to $8.99 per month. Netflix said the price increases for the U.S. would roll out for existing customers over Q1 and Q2.
Starting with the Q4 2018 results, Netflix is providing guidance only for paid streaming memberships (excluding free-trial accounts), which the company says will give investors a more accurate forecast compared with projections for total streaming users. Netflix made the reporting change after it significantly over-forecast global net additions for the second quarter of 2018, sending the stock tumbling. CEO Reed Hastings told investors the miss was due to “lumpiness in the business.”
Among the slew of originals Netflix has recently released and ordered, the streamer announced the second-season renewal of comedy series “The Kominsky Method” starring Michael Douglas and Alan Arkin, which picked up two Golden Globe Awards wins.
Meanwhile, Netflix has a new CFO: Earlier this month it named Spencer Neumann, poached from Activision Blizzard, as its new chief financial officer, who replaces outgoing finance chief David Wells.
Netflix reported operating margin of 10.1% for full-year 2018, after having targeted 10%-11% operating margin (up from 7% in 2017). “We are in no rush to push margins up too quickly, as we want to ensure we are investing aggressively enough to continue to lead internet TV around the world,” the company explains on its investor-relations site.