Netflix beats on subscriber growth, but misses slightly on revenue — stock falls after hours

Netflix posted mixed fourth-quarter earnings results Thursday, sending shares down roughly 2 percent in extended trading. Here’s how the company did compared with Wall Street estimates:

• EPS: 30 cents, vs. 24 cents forecast by Refinitiv consensus estimates
• Revenue: $4.19 billion, vs. $4.21 billion forecast by Refinitiv consensus estimates
• Domestic subscriber additions: 1.53 million, vs. 1.51 million forecast by FactSet
• International subscriber additions: 7.31 million, vs. 6.14 million forecast by FactSet

The quarter was expected to cap an expensive year for Netflix, as the company ramps up content spend and original programming. Reported EPS represents a 66 percent markdown from the third quarter of 2018, and a 27 percent downside from the year-ago quarter.

Revenue for the quarter fell right in line with recent trends, though, hinting at higher expenditures. Fourth-quarter revenue totals mark a 28 percent year-over-year jump. The company is guiding toward lower-than-expected results for the first quarter of 2019. Netflix expects earnings per share of 56 cents on revenue of $4.49 billion, compared with Wall Street consensus estimates of 82 cents and $4.61 billion.

Netflix previously warned content costs are more heavily weighted in the second half of the year. Streaming incumbents like Netflix and HBO are increasingly banking on original hits to stave off threats from new streaming entrants like Amazon, Disney and AT&T.

“We’re making significant investments in productions all over the world because we have seen that great stories transcend borders,” the company said in its shareholder letter. “We are ready to pay top-of-market prices for second run content when the studios, networks and producers are willing to sell, but we are also prepared to keep our members ecstatic with our incredible original content if others choose to retain their content for their own services.”

Netflix reported free cash flow for the quarter of negative $1.3 billion. The company expects its cash burn, which totaled negative $3 billion for the year, to hold consistent in 2019. After that, the company said, free cash flow will improve.

Subscriber additions for the quarter came in just above Wall Street estimates and the company’s own projections. Netflix added 8.8 million global paid memberships during the fourth quarter, compared with its stated estimate of 7.6 million. The company posted 1.5 million new subscribers in the U.S. and 7.3 million new subscribers internationally.

Netflix added 29 million paid subscribers for the full year of 2018, 33 percent higher than the 22 million paid subscribers it added in 2017.  The company’s executives indicated last quarter it would be de-emphasizing 30-day free trial memberships and focusing more heavily on paid memberships. Free trials accounted for 9 million global memberships during the fourth quarter.

The service has seen considerable growth in emerging international markets like India and Mexico, exposing the company to certain foreign exchange headwinds.

It’s also been pushing into family and children’s content, and it recently experimented with interactive story formats. Netflix said it claims 10 percent of television screen time in the U.S. and that it counts non-television offerings like the video game Fortnite among its most serious competitors.

Shareholders have rewarded the company for its aggressive content strategy, sending the stock up about 30 percent in the first few weeks of 2019. Shares gained 7 percent during a single session earlier this week, after Netflix announced it was raising rates across its streaming plans.