Netflix shares hit new high after strong fourth quarter results
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Netflix shares hit new high after strong fourth quarter results

Streaming Video On Demand (SVOD) provider Netflix has seen its share price hit a new high after releasing earnings that thrilled investors. The company  smashed Wall Street’s expectation for new subscribers – a crucial metric, as competition in the SVOD industry heats up – in the fourth quarter. Analysts had expected Netflix to add 5.1 million to its international audience, which would have been no small feat in itself. The company, however, blew those expectations away by adding 6.36 million instead. As a result, the company’s market cap crossed the $100 billion threshold for the first time.

In just three weeks, Netflix’s share price has risen by more than 30%!

graph 0124 netflix

SOURCE: Yahoo Finance

The number of subscribers added overall was equally impressive – 8.33 million against expectations of 6.39 million. This marks the most growth the company has ever experienced in a single quarter, and signs are that it expects its winning streak to continue: the guidance it provided for its coming first quarter was well above estimates.

In October, Netflix raised its subscription fees for U.S. customers for the first time in 2 years. However, this was offset by an incredibly strong lineup of original programming, including hits like Stranger Things, The Crown, and Black Mirror. Exclusive and original content has proved to be a defining factor in competition between SVOD providers, as they race to bring the best shows to their audiences, validating loyalty to one platform or another. And, in an industry where all the main players are producing top-quality video, Netflix is outperforming.

Netflix is taking this production to new levels. Last year, the company spent $90 million on “Bright” a Will Smith urban fantasy-meets-buddy cop action flick. Although it received a lukewarm reception from critics, the film proved popular with Netflix subscribers, and a sequel is already in the works.

Now, the numbers: Netflix matched consensus estimates on earnings per share (41¢), and logged a slender beat on revenue ($3.29 billion against $3.28). As previously discussed, it saw a serious beat against expectations on the number of subscribers it added throughout the quarter, and the other outstanding figure comes down to how much it is spending. A Factset estimate expected to see free cash flow of -$742, but the company is burning through far less than expected: -$524. For comparison’s sake, in the fourth quarter of 2016, Netflix saw earnings per share of 15¢ on revenue of $2.48 billion.

Netflix thinks that original content is key. In its shareholder letter, the company wrote: “we believe our big investments in content are paying off.” CEO Reed Hastings announced that he’s pushing it further: in 2018, the company will spend between $7.5 billion and $8 billion, and this figure will continue to rise in 2019 and 2020.

The SVOD space is heating up. Six months ago, Disney announced that it would be pulling its content from Netflix, and big names like Apple, Amazon, and YouTube have started creating their own content to draw viewers onto their own platforms. Netflix, however, is not worried. The company told press that: "The market for entertainment time is vast and can support many successful services. In addition, entertainment services are often complementary given their unique content offerings. We believe this is largely why both we and Hulu have been able to succeed and grow."

Disclosure

Dominion holds Netflix in its Global Trends Ecommerce Fund.


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