Netflix (NFLX) Tops Q4 EPS Views; Issues Light Q1 EPS Outlook
(Updated - January 20, 2015 4:04 PM EST)
Netflix (NASDAQ: NFLX) reported Q4 EPS of $0.72, $0.27 better than the analyst estimate of $0.45. Revenue for the quarter came in at $1.48 billion versus the consensus estimate of $1.48 billion.
Domestic steaming subscribers rose 1.9 million, while international streaming added 2.43 million.
Netflix commented:
"Our US forecast for Q4 members proved very accurate (39.11A versus 39.07F). Internationally, our forecast was low, and actuals came in slightly ahead (18.28A versus 17.99F). To remind everyone, the quarterly forecast we provide is our actual internal forecast at the time we report.
On an absolute basis (as opposed to relative to forecast), US net adds are down compared to one year ago (1.9 million this Q4 versus 2.3 million for Q4 2013). In October, we judged the leading factor of the similar decline in Q3 y/y net adds to be our May price change. Since then, with additional research, we now think that the decline in y/y net adds would have largely taken place independent of the price change. We’ve found our growth in net adds is strongest in the lower income areas of the US, which would not be the case if there was material price sensitivity. Additionally, we implemented a similar price change in Mexico during Q4, and saw no detectable change in net additions.
It is increasingly clear that virtually all entertainment video will be Internet video in the future. We believe there is big growth ahead in the US market for Netflix, even if we may not get there in a straight line of 6 million annual net adds. We’ll continue to improve our content, our marketing and our service, to eventually achieve “must have” status in most households. Our international segment is growing very nicely with net adds of 2.43 million members in Q4, compared to 1.74 million a year ago. Our initial set of markets (Canada, Latin America, the UK, Ireland, the Nordic countries and the Netherlands) achieved contribution profitability in Q3 and continue to grow. Our launch in Q3 in France, Germany, Austria, Switzerland, Belgium and Luxembourg went well and our new original content is particularly popular. With all of the additional new original content set to premiere in 2015, it will be a big year for us in France, Germany and our other recently launched markets. We’ve successfully built big demand for Netflix from Argentina to Finland, due in part to the overall shift from linear to Internet TV.
In late Q1, we’ll be launching Netflix in Australia and New Zealand. There are numerous local competitors and a thirst for movies and TV shows from around the world. Later in the year, we’ll launch additional major countries, in keeping with our global strategy.
Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected. We then intend to generate material global profits from 2017 onwards.
We already offer Netflix in about 50 countries and have learned a great deal about the content people prefer, the marketing they respond to and how to best organize ourselves for steady improvement.
Acceleration to 200 countries is largely made possible by the tremendous growth of the Internet in general, including on phones, tablets and smart TVs. We intend to stick to our core ad-free subscription model. As with our initial round of international expansion, we’ll get some things wrong and do our best to fix them quickly.
For most countries we have a good idea of the best approach for Netflix to take. For China, we are still exploring options — all of them modest. We’ll learn a great deal if we can successfully operate a small service in China centered on our original and other globally-licensed content. That is our preference, for the next few years, if we are able to acquire the necessary permissions.
It is advantageous for Netflix to become global in many ways. The big one is absolute size (faster to $10B in revenue) because that revenue allows us to develop and license more content for our members and improve our service. A second is being able to source great stories from around the world and deliver them to the world. A third is the efficiency and influence of being a unique global licensor that provides worldwide distribution.
With the growth of the Internet over the next 20 years, there will be some amazing entertainment services available globally. We intend to be one of the leaders."
Netflix sees FY2015 EPS of $0.60, versus the consensus of $0.77.
For earnings history and earnings-related data on Netflix (NFLX) click here.