Everybody worried about Netflix can chill: the company added more subscribers than expected at the end of last year and its sky-high share price soared another 9% on the news.
In the company’s fourth-quarter 2015 results, it outdid Wall Street expectations by a full five cents per share and added 5.59 million viewers, boosting worldwide subscriptions to nearly 75m.
The popular streaming video service used its better-than-expected earnings report to fire back at NBCUniversal, which published its own estimates of the ratings-shy video provider’s shows earlier this month.
Reed Hastings, CEO, took the opportunity to have a few words with his detractors, singling out a news article as a call “to be fearful”. “Or, at the other extreme, an NBC executive recently said internet TV is overblown and that linear TV is ‘TV like God intended’. Our investors are not as sure of God’s intentions for TV,” Hastings wrote in a letter to shareholders.
The company’s profits declined year-over-year in the fourth quarter; Netflix also said it anticipates higher turnover among existing subscribers in the coming two quarters as it begins “releasing a substantial number of our US members from price grandfathering,” or, in layman’s terms, raising prices by $2 for people who were on the $7.99 plan to $9.99 if they want to keep HD.
David Wells, Netflix’s CFO, said the company would likely look to raise more debt later in 2016, possibly in 2017. “You should assume the debt instruments are similar to the ones we’ve used in the past,” said Wells, a reference to Netflix’s bonds. “We think we’ll become a better credit risk in ‘17-‘18. To date our bonds have traded pretty well.”
Netflix still relies heavily on the catalogs of traditional TV networks for its business model to function; Hastings said the relationship was symbiotic, not parasitic. In what may be a first for a corporate earnings report, the executive also singled out competitors for praise, including Hulu, HBO Now and CBS All Access, calling them “the beginnings” of plans “to use the revenue from Netflix and other SVOD [streaming video on demand] services to fund both great content and their own evolution”.
Rich Greenfield, analyst with BTIG, wrote a series of open questions for Hastings, among them whether its pricing structure overseas should be reworked (in India in particular, the 500-rupee price point may have been too high), and how payments will work during the much-publicized rollout of “Netflix everywhere”, the company’s international expansion.
Netflix’s legacy original business model, DVDs by mail, is falling off, but Hastings said it was “managing the decline well”; customers who like the physical discs better than (or in addition to) the over-the-web service contributed some $80m to the bottom line.
“We don’t release title‐level ratings as our business model is not dependent on advertising or affiliate fees,” Hastings wrote. “It is member viewing and satisfaction that propels our growth.”
Charlie Biello, director of research at Pension Partners, tweeted a comparison of revenue growth among major media companies; Netflix was not merely at the head of the pack but the inverse of Fox, which shrank 23% while Netflix grew by the same amount.
Sales Growth, YoY% $FOX: -23% $VIAB: -5% $NWSA: -4% $TRI: -4% $CBS: -3% $OMC: -1% $CVC: -1% $DISCA: -1% $TWC: +3% $DIS: +9% $NFLX: +23%
— Charlie Bilello, CMT (@MktOutperform) January 19, 2016
The company will up its internally produced video from 450 hours to 600 hours in 2016 – more than enough to fill a network primetime schedule for an entire season.
While Hastings remained cagey about actual viewership figures, he did reiterate that Adam Sandler’s critically reviled movie The Ridiculous Six had been the most popular film in the history the service for its first 30 days of availability. The company will also make efforts to improve its mobile app by trying to make its use of cellular data more efficient.
