Netflix blows past the Street’s forecast in first quarter of the year
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Netflix blows past the Street’s forecast in first quarter of the year

Streaming Video On Demand (SVOD) market leader Netflix easily overshot analysts’ expectations for the number of new users on its platform in the first quarter of 2018. Perhaps more important than the figures, though, is what they represent: Netflix hasn’t just added more viewers – it’s done so while raising prices in most of its markets.

There’s no doubt that this signals a healthy business model, which capitalizing on strong demand for more convenient, better priced, viewing options than that offered by traditional TV subscriptions. Unsurprisingly, Netflix offered an incredible positive forecast for the coming quarter, and the company’s share price surged on the news.

graph 1904 netflix

Netflix added 7.41 million users over the three months, easily beating the Street’s expectations. Sales were up by 40%, allaying fears from some commentators that the company was spending too much on original content. Netflix is planning to spend $7.5 billion to $8 billion on programming in a bid to add viewers to its 125 million-strong audience. The company’s CEO, Reed Hastings, told investors on a call that success didn’t come easy: “You have to earn it by doing spectacular content. If you do that, you can get people to pay more because then we can invest.”

Netflix’s share price has appreciated by an incredible 75% so far this year

graph 1904 netflix 2

SOURCE: Yahoo Finance

Netflix’s original content has been the driving force behind the company’s success. It was Netflix-produced shows like Orange is the New Black and House of Cards that caused its popularity to suddenly increase in the U.S., and the company has not held back. This year already, Netflix has debuted a number of hit shows, one-shot specials, and films including the second season of Marvel’s Jessica Jones, Natalie Portman-fronted sci-fi thriller Annihilation, and Seth Rogen’s Hilarity for Charity. It’s poached top talent from elsewhere, like producer Ryan Murphy, previously with 21st Century Fox, who is the man behind breakout success American Horror Story.

The trend towards cord cutting in favour of SVOD services continues, and Netflix is ramping up its ambitions regarding original content: Netflix plans to release about 700 pieces of original content this year, including 80 movies – that’s more than any single studio. Increasingly, the company is looking set to redefine the entertainment landscape over the coming months and years.

Disclosure

Dominion holds Netflix in its Global Trends Ecommerce Fund.


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