Netflix fourth quarter divides opinions

Netflix enjoyed its best year for customer subscriptions growth but analysts differed over whether fourth-quarter numbers were good enough.

Revenue for the fourth quarter of $4.19bn was short of predictions from Wall Street analysts of $4.21bn, even though the company managed to add more customers over the holiday season.

It lifted its total number of paid subscribers to 139m with 8.8m new subscriptions, which was a beat or a miss depending on two different consensus expectations numbers of 7.5m and 9.2m. Of the new subscribers, 1.53m were in the US.

The online video streaming platform reported net income down from $186m the year before to $133.9m, though earnings per share of $0.30 were above the $0.24 expected.

For the first quarter of 2019, Netflix has predicted revenues of $4.4bn and an operating profit of $400m, in addition to a net profit of $253m. Regarding the subscriber base, it expects to increase it by 25% to 148.2m users.

With some investors and analysts looking concernedly at new streaming services being launched by Disney, Warner, Comcast and possibly Apple, with existing competition from Amazon Prime, Hulu and YouTube, the company said: "Our growth is based on how good our experience is, compared to all the other screen-time experiences from which consumers choose. Our focus is not Disney, or Amazon or others, but on how we can improve our experience for our members.”

Netflix stock fell 2% in after-hours trading overnight to $346.45.

ANALYSTS DISAGREE

Naeem Aslam, market analyst at Think Markets, said that: “Investors didn’t like their earning numbers at all. Having said this, the volatility which we have experienced last night for the Netflix stock was still relatively on the low side because usually it has the tendency to move 15% in either side."

Jasper Lawler, analyst at London Capital Group, said that subscriber growth is still the big number to watch: “As costs for programming at Netflix have soared, Netflix executives regularly justify soaring programming costs as an investment for attracting new subscribers. This is why subscriber numbers are considered to be so important.

“Whilst this quarter was a little off, 2018 as a whole showed the strategy to be working. 29m new subscribers in 2018 made it Netflix’s best year yet for customer growth.”

Netflix increased its prices for US subscribers this week, which "may slow domestic subscriber growth dramatically this year,” warned broker Wedbush Securities. “We do not expect significant churn given the utility provided by the service to existing subscribers, but attracting new subscribers will likely be more challenging because of the higher prices."

But with price of a US cable subscription topping $80, BTIG analyst Rich Greenfield told Yahoo, the $13 charge from Netflix was "still an incredible price value, especially when you look at how much content has come onto Netflix over the last couple of years ... And I don’t think they’re ever going to do ads.”