Wed, Apr 19, 2017 - Page 10 News List

Netflix to trade subscriber growth for profits

Bloomberg

For now, Netflix Inc investors can have rapid subscriber growth or a big jump in profit — not both.

The streaming-video giant on Monday reported first-quarter user gains that fell short of estimates because there was not a House of Cards-style hit to draw new viewers and retain others.

On the other hand, the lack of big-budget productions boosted net income.

Next quarter, with the return of House of Cards and three major movies on the release schedule, profit is likely to miss estimates, while customer gains are likely to improve, Netflix said.

The dilemma whipsawed Netflix investors late on Monday, with the stock dropping on the subscriber figures before recovering later and moving higher.

The shares rose 1.4 percent to US$149.3 in extended trading after results were announced. They had gained 15 percent this year through Thursday.

The world’s biggest paid video service signed 4.95 million new customers last quarter, less than the 5.49 million analysts were expecting. It is expected to make up some of that in the current period, with a forecast for viewer growth that beat analysts’ forecasts.

“There’s nothing here that changes the thesis,” said Anthony DiClemente, an Instinet LLC analyst who recommends buying the shares. “If you own Netflix because you think they are going to add subscribers globally, you’re still going to own it. If you don’t own it because you think Netflix was spending too much money to invest in said growth, you still feel the same way.”

Netflix needs to add millions of subscribers every quarter to help pay for the billions of US dollars the company spends making TV shows and movies or licensing programs from others.

The company, which has committed US$15.3 billion for movies and TV shows over the next five years, has not given any indication it plans to slow those outlays and said it plans to raise money this quarter by issuing long-term debt.

Netflix released 17 stand-up specials, nine feature films and an array of original series for kids and adults, but blamed the absence of one show — House of Cards — for its slower-than-projected viewer growth.

The company could turn the tide in the second quarter, typically one of its weakest.

Netflix, based in Los Gatos, California, has lined up a slew of high-profile releases in the coming months, including new seasons of House of Cards, Orange Is the New Black and Master of None.

The heavy second-quarter schedule comes with costs and highlights a dilemma. Because of those expenses, Netflix said profit in the period will be US$0.15 a share, short of analysts’ estimate of US$0.23. Revenue will be US$2.75 billion, versus Wall Street projections of $2.76 billion.

The first quarter, lighter on new releases, was the company’s most profitable ever and the first time international operations made money.

Investors have permitted Netflix to operate near break-even on the expectation that the company, which expects to top 100 million customers this week, will continue to grow rapidly, especially outside the US.

Chief executive officer Reed Hastings has also pledged to deliver material profits starting this year.

Analysts are forecasting net income of US$477.2 million, or US$1.09 a share, on revenue of US$11.2 billion, based on the average of estimates compiled by Bloomberg.

The company said first-quarter profit more than quadrupled to US$178 million, or US$0.4 a share, compared with analysts’ predictions of US$0.37. Revenue grew 35 percent to US$2.64 billion.

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