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Everything You Need to Know About Netflix's (NFLX) Q4 Earnings Results

Benjamin Rains

Shares of Netflix NFLX dipped over 3.5% in after-hours trading Thursday as investors seemed to react negatively to a small revenue miss. Aside from that, the streaming TV powerhouse crushed its own subscriber forecast, but its spending might have some investors nervous.

Top & Bottom-Line Results

Netflix saw its fourth-quarter revenues surge 27.4% from the year-ago period to hit $4.19 billion. This fell just below our Zacks Consensus Estimate that called for quarterly revenues of $4.21 billion. This also marked a slowdown from Q3’s 34% top-line expansion as well as Q2 and Q1’s 40% growth.

Overall, Netflix’s full-year fiscal 2018 revenues also fell slightly below our $15.81 billion estimate at $15.79 billion, but still marked a roughly 36% climb from 2017.

Meanwhile, at the bottom end of the income statement, Netflix’s adjusted Q4 earnings of $0.30 a share topped our $0.24 per share estimate. But investors should note that this represented a massive decline from the year-ago period’s $0.89 a share as Netflix continues to spend billions on new content.

 

User Growth

Netflix expected to add 7.6 million paid subscribers during the fourth quarter to bring its total to 138.02 million. Reed Hastings’ firm crushed its forecast to pull in a total of 8.84 million new paying members around the globe. More specifically, the Los Gatos, California-based company added 7.3 million paid international memberships in Q4, which easily beat its 6.1 million projection at the start of the quarter.

The streaming firm’s 1.5 million net additions in the U.S. matched its guidance and helped the firm close the fourth quarter with a total of 139.26 million paid members. Looking ahead, the firm expects to add a total of 8.9 million paying subscribers in the first quarter of 2019. Netflix projects it will gain 7.3 million international users and 1.6 million in the U.S.  

Investors should note that Netflix has said it will stop including free trial memberships when calculating total net additions going forward.

Outlook

The streaming firm reported a negative free cash flow of -$1.3 billion in Q4 to bring its full-year total to negative -$3 billion in 2018. Going forward, the firm expects its 2019 cash flows to come in at the same level as it spends more and more on content. Netflix has also taken on more long-term debt in order to expand its streaming library in an ever more crowded market. 

Netflix projects that its Q1 revenues will climb by 21%, which comes in below our current estimate that calls a 24.1% surge to $4.59 billion. The company also announced earlier this week that it raised prices on all of its streaming plans amid the growing cord-cutting revolution, highlighted by the growth of smaller firms like Roku ROKU.

The firm’s most popular standard plan climbed from $11 to $13 per month. Meanwhile, Netflix lifted the price of its basic plan from $8 to $9 a month and its premium, four-screen offering from $14 to $16. Netflix last raised its prices in October of 2017, and the new price hikes represent the largest increase since it launched streaming 12 years ago.

Netflix’s new prices should help it ramp up its original content spending, as it prepares to continue to fight Hulu, Amazon AMZN Prime, and soon enough Disney DIS, Apple AAPL, and AT&T T. Not to mention, Google’s GOOGL YouTube has original content and Facebook FB is committed to a streaming expansion. 

NFLX stock rested down 3.5% at roughly $341.47 a share in after-hours trading Thursday, which marked a roughly 20% downturn from its 52-week high.

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