Expectations for Netflix’s latest earnings were high after the company raised prices for its streaming subscriptions in the US earlier this week, in a show of strength from the video giant. The company delivered … sort of.
Netflix added 8.84 million new paying members during the fourth quarter of 2018, it said in a letter to shareholders (pdf) on Thursday, more than the 7.5 million analysts surveyed by FactSet projected. The growth was a new high-water mark for Netflix, which stopped reporting overall subscriber additions during the period in favor of paid additions that exclude free trials.
But the streaming-video company also posted revenue of roughly $4.2 billion, slightly below analysts’ expectations. That subscription hike came at just the right moment, giving investors an assurance it believes it can get more cash out of members.
Shares of Netflix fell about 3% in after-hours trading on Thursday, mainly because the strong subscriber growth was already factored into the stock this week.
The increase was also well-timed, as new competitors including Disney and WarnerMedia will be entering the subscription streaming space and vying for dollars later this year. Netflix said its plan for the next few years is to focus on growing revenue faster by charging more for its services over time, while continuing to grow its content library so people feel they’re getting a good value for their money. Netflix’s streaming-content obligations, an estimate of what it will owe for content based on contracts and productions, reached $19.3 billion during the quarter, up from $18.6 billion the prior quarter. For the full year of 2018, Netflix spent about $12 billion in cash on content, calculated by (paywall) adding two lines in its cash-flow statement, in line with analyst expectations. The company did not disclose its content budget for 2019.
Netflix called out the success of its original programming, which makes up the bulk of its content spending, including films such as Bird Box, the Coen brothers’ The Ballad of Buster Scruggs, and Alfonso Cuarón’s Roma. The company said it would be buying fewer TV reruns and films from other studios in favor of its own, original programming.
Earnings for the fourth quarter came in well ahead of expectations, at $0.30 per share, which was a 27% drop from the same period a year ago. Overall, Netflix now has 139 million paying members.
Want a better understanding Netflix and other streaming giants? Check out our guide to the streaming-TV wars.