Netflix reported revenues of USD 4.52 billion for the first quarter, showing a small slowdown in growth to 22.2 percent compared to 40.4 percent a year ago. The company added 9.60 million streaming subscribers in the quarter, a new record, for a total of 148 million at the end of March.
The company maintained its outlook for 2019, for an operating margin of 13 percent and a cash outflow of USD 3.5 billion. Subscriber growth is expected to remain at record levels, with the addition of 30 million new customers. For the second quarter, Netflix targets revenue growth of 32 percent and an increase in ARPU of 7 percent.
Netflix's quarterly results per segment:
- Streaming US: net additions of 1.74 million to 60.2 million, revenues up 14 percent to USD 2.07 billion, contribution margin (after marketing costs) 34.4 percent versus 38.3 percent a year earlier. We calculate an ARPU of USD 11.64, a new record.
- Streaming international: net additions of 7.86 million to 88.6 million, revenues up 33 percent to USD 2.37 billion, contribution margin 11.6 percent versus 15.3 percent a year ago. This results in ARPU of USD 9.31.
- DVD by mail: customer loss of 144,000 to 2.57 million, revenues down 18 percent to USD 80.7 million, contribution margin 57.9 percent versus 57.1 percent a year ago.
The guidance for Q2 by segment:
- Streaming US: net additions 0.3 million, revenues of USD 2.28 billion, contribution margin 34.9 percent.
- Streaming international: net additions 4.7 million, revenues USD 2.58 billion, contribution margin 15.5 percent.
- DVD by -mail: revenues USD 76 million.
- Net profit USD 249 million.
- Cash outflow: content investment at record level.
Netflix's content investments are reflected in its cash flow overview, which showed spending of USD 3.0 billion in Q1, less than the previous three quarters. Accumulated over the past four quarters, the figure reached USD 13.1 billion, up slightly from the previous quarter, suggesting the company has reached a peak.
In total, the company spent net cash of USD 442 million in the quarter, reducing its cash position to USD 3.37 billion. Reported free cash flow was a negative USD 460 million.
No impact from competition
In his usual letter to shareholders, CEO Reed Hastings commented on the recent announcements by Apple and Disney to launch their own streaming subscription services. He said Netflix was "excited to compete" with these "world class brands", but does not see the new entrants having a material effect on its growth. According to Hastings, this is because "the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings. We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing."
The company also announced plans to start issuing top-10 lists each week on the best viewed items in each category. This will start in Q2 in the UK. Recent hits on the platform include 'Triple Frontier' with 52 million views, 'The Highwaymen' with 40 million and 'FYRE' with 20 million.
