Netflix—you want the good news or the bad news first?
Here’s the good news: The streaming TV giant released its fourth-quarter earnings results today (Jan. 19), and the company largely hit its targets. Netflix now boasts 75 million subscribers across the globe (even though it technically finished 2015 with 74.76 million subscribers, needing the first day of January to cross 75 million). The company also added over 4 million subscribers outside the US, beating its own estimates of 3.5 million.
Immediately following the news, Netflix’s stock soared over 9% in after-hours trading:
Many analysts were worried that the best stock of 2015 might be in for a rude awakening in 2016, due to various emerging obstacles. Increased competition from streaming services like Hulu, Amazon Video, and HBO Now has made the online TV landscape much more crowded. The rising number of people around the world using VPN services to access better versions of Netflix has forced the company to begin clamping down on the practice. And some experts feared that news of a $1 price hike could lead to slower growth in the US and elsewhere.
Now here’s the bad news: Netflix missed its own US subscriber growth estimates for the second quarter in a row. While it was a very small miss—it added 1.56 million subscribers in the US against a 1.65 million estimate—a miss is still a miss. Last quarter, the company blamed the gradual shift to chip-based credit and debit cards for the slow growth. Indeed, in his earnings letter today, CEO Reed Hastings said that shift “continues to be a background issue.” Other subscription-based companies have not yet reported similar problems.
But when Netflix missed the subscriber mark last time, its stock dropped (before rebounding a few months later to an all-time high). So why aren’t investors worried this time around?
The answer appears to be twofold. First, some consider a miss this small to effectively be a “hit.” Some analysts were projecting even smaller US subscriber gains than what Netflix reported. The headline number—75 million total subscribers—makes the slight shortfall almost irrelevant.
The second and bigger reason investors don’t mind the minor miss in US subscriber growth is because international business is booming. If it wasn’t obvious before, Netflix made it abundantly clear that it’s a truly global company when it announced it was expanding into 130 new countries—putting the entire world (except China) in its reach.
Netflix also hit on some other key figures that prove its core business is strong even as it arguably spreads itself thin trying to service the entire world. Earnings per share moved up to 10 cents, versus its own estimates of just two cents. Revenue ($1.82 billion) was up 23% from a year earlier, which met Wall Street’s projections. The company reported $43 million in profit.
Make no mistake, the sluggish US growth is worth watching closely, especially as price hikes begin to take effect this year. But Netflix is a global company, so its global figures are what will count the most in 2016 and beyond.