Netflix fourth quarter results show boost in subscribers but misses on revenue

Netflix posted mixed fourth-quarter earnings results sending shares down roughly 4 per cent in extended trading; it earned 30 cents a share on revenue of $4.19 billion during the period

Netflix

Leading internet entertainment service, Netflix Inc., showed a rise in new subscribers but reported a shortfall in quarterly sales, sending the stock lower and disappointing investors. 

Netflix ended the year 2018 with more than 139 million paid subscribers, adding 8.8 million members in the last three months. The streaming giant said the growth reflected the success of its original programmes, such as ‘Bird Box’ and ‘Roma’.

The streaming giant earned 30 cents a share on revenue of $4.19 billion during the period, in the 2017 quarter, Netflix earned 41 cents a share on sales of $3.29 billion. 

For the current quarter, Netflix expects to add 8.9 million paying subscribers. It forecast earnings per share of 56 cents on sales of $4.49 billion. Analysts polled by Thomson Reuters expected Netflix earnings of 83 cents a share and $4.61 billion in revenue.

The quarter was expected to cap an expensive year for Netflix, as the company ramps up content spend and original programming. Reported EPS represents a 66 per cent markdown from the third quarter of 2018, and a 27 percent downside from the 2017 quarter.

Revenue for the quarter fell right in line with recent trends, though hinting at higher expenditures. Fourth-quarter revenue totals mark a 28 percent year-over-year jump.

The company is guiding toward lower-than-expected results for the first quarter of 2019. Netflix expects earnings per share of 56 cents on revenue of $4.49 billion, compared with Wall Street consensus estimates of 82 cents and $4.61 billion.

The streaming giant previously warned content costs are more heavily weighted in the second half of the year. The newly appointed Chief Financial Officer, Spence Neumann, said during the company's earnings statement that a move toward owned content has "put pressure on the cash flows of the business and the cash needs of the business over the past few years," but that the company is confident in its investment.

Netflix reported free cash flow for the quarter of negative $1.3 billion. The company expects its cash burn, which totalled negative $3 billion for the year, to hold consistent in 2019. After that, the company said, free cash flow will improve.

Subscriber additions for the quarter came in just above Wall Street estimates and the company's own projections. Netflix added 8.8 million global paid memberships during the fourth quarter. The company posted 1.5 million new subscribers in the U.S. and 7.3 million new subscribers internationally.

Netflix added 29 million paid subscribers for the full year of 2018, 33 percent higher than the 22 million paid subscribers it added in 2017.

The company's executives indicated last quarter it would be de-emphasising 30-day free trial memberships and focusing more heavily on paid memberships. Free trials accounted for 9 million global memberships during the fourth quarter. The service has seen considerable growth in emerging international markets like India and Mexico, exposing the company to certain foreign exchange headwinds.

Shareholders have rewarded the company for its aggressive content strategy, sending the stock up about 30 percent in the first few weeks of 2019. Shares gained 7 percent during a single session earlier this week, after Netflix announced it was raising rates across its streaming plans.

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