Netflix added 8.33 million streaming subscribers in the fourth quarter, with 1.98 million coming from the US and 6.36 million from outside. The total number of subscribers went to 117 million, from almost 94 million year-on-year, including 62.8 million outside of the US.
The results exceeded the company's guidance, which forecast 6.3 million new subscribers. The company has now increased its budget for original content for 2018 to USD 7.5-8.0 billion from 7 billion in 2017. The marketing budget has also been expanded, to help push the success of the company’s own productions. It will rise to USD 2 billion from 1.3 billion the year before. The company also expects an end to negative free cash flow; until recently, it had only spoken about continuing losses.
In reaction to the results, the share price for Netflix jumped around 8 percent in after hours trade, pushing the company's market capitalisation to an all-time high of USD 111 billion.
Total streaming revenues jumped 35 percent from the year before to USD 3.18 billion. The contribution profit (gross results after marketing costs) soared 48 percent to USD 696 million, good for a margin of 21.9 percent. The original DVD rental service in the US generated revenues of USD 105 million (-17%), with a high margin of 59.6 percent.
Total revenues leaped 33 percent to USD 3.29 billion, with a record contribution profit of USD 758 million and a margin of 23.1 percent. The operating profit went 59 percent higher to USD 245 million and the net profit surged 178 percent to USD 186 million, breaking all Netflix records.
The company spoke of a “beautiful” quarter and attributed the striking growth to investments in original content. Even after a USD 39 million write-off for “unreleased content we’ve decided not to move forward with” (reference to Kevin Spacey footage for House of Cards), the contribution profit and operating profit went far beyond company expectations.
During the quarter, Netflix borrowed USD 1.6 billion, leading to positive cash flow of USD 1.08 billion and increasing the cash position to USD 2.82 billion. Under the company's own reporting, free cash flow was a negative USD 524 million, more or less in line with the past five quarters. Content expenditures (on a cash flow basis) amounted to USD 2.42 billion for the quarter and USD 8.91 billion for full year 2017.
Looking towards 2018, Netflix expects global net additions of 6.3 million for the first quarter, compared to 5.0 million adds the year before, with 1.45 million coming from the US and 4.90 million from outside. Total revenues are seen rising over 40 percent to USD 3.69 billion, including USD 1.81 billion from streaming in the US (+23%) and USD 1.78 billion from outside (+70%). The net margin is expected at 10 percent, compared to 7 percent the year earlier.
The company said it will invest USD 1.3 billion into technology and development, against 1.05 billion the year before. Free cash flow is expected at a negative USD 3-4 billion, but management is positive for looking ahead. "In the future, a combination of rising operating profits and slowing growth in original content spend will turn our business FCF positive". This is a change from previous quarters, when management spoke about negative numbers.
As previously announced, Netflix plans to come out this year with international original series in France, Poland, India, South Korea and Japan.
