Netflix once again beat expectations on subscriber growth, packing on 7.4 million net streaming customers worldwide for the first quarter of 2018.
The streaming giant added 1.96 million net U.S. streaming subscribers and 5.46 million internationally for the quarter ended March 31. The company’s total net gain of 7.4 million subs in Q1 — a new record for the first quarter — topped its previous guidance of 6.35 million by more than a million. The company counted 125 million subscribers worldwide as of the end of March.
Netflix reported $3.7 billion in revenue for Q1 and a net profit of $290 million (67 cents per share).
On the results, Netflix shares jumped more than 6% in after-hours trading Tuesday. The stock had closed down 1.2% for the day in regular trading, to $307.78 per share.
Wall Street analysts had expected Netflix to report U.S. net adds of 1.48 million subs and 4.84 million international subs (in line with the company’s previous guidance) and had pegged Q1 revenue at $3.89 billion and earnings per share of 64 cents.
Despite falling short on the top line relative to analyst expectations, Netflix noted in its letter to investors that quarterly revenue grew 43% year over year in Q1, “the fastest pace in the history of our streaming business.” That was due to a 25% increase in average paid streaming memberships plus a 14% rise in the average subscription price, coming after Netflix raised rates on its plans in the U.S. and other territories in Q4 of 2017.
For Q2, Netflix said it expects 6.2 million global net additions (1.2 million in the U.S. and 5.0 million for the international segment) — up from 5.2 million in the year-earlier quarter, and higher than Wall Street analysts expected for Q2.
The company said it expects content spending of $7.5 billion to $8 billion for 2018, in line with its previous estimates. Netflix also said it will “continue to raise debt as needed to fund our increase in original content.” Netflix reported $6.54 billion in long-term debt and $3.44 billion in long-term content payment obligations as of March 31, 2018.
The cash burn will continue: The company continues to forecast negative free cash flow of $3 billion to $4 billion in 2018, “and to be free cash flow negative for several more years as our original content spend rapidly grows.”
During Q1, Netflix scripted original series that premiered included “The End of the F***ing World,” sci-fi thriller “Altered Carbon,” and returning seasons of “Marvel’s Jessica Jones,” “Grace and Frankie,” “Santa Clarita Diet” and “A Series of Unfortunate Events.”
On the unscripted front, after expanding into the category last year, Netflix claimed that its “output in this area is now comparable to similarly focused U.S. domestic cable networks.” The company cited shows like “Queer Eye” and “Nailed It” as “great examples of our ambitions in this area: engaging, buzz-worthy shows that drive lots of enjoyment around the world.”
Netflix’s marketing spending was up a whopping 77% in the first quarter, to $479 million. The company had previously told investors it would increase its investment in marketing for 2018.
Meanwhile, Netflix addressed it decision to pull out of the Cannes Film Festival, as first reported last week by Variety. “The festival adopted a new rule that means if a film is in competition at Cannes, it can not be watched on Netflix in France for the following three years. We would never want to do that to our French members,” the company said in the shareholder letter.
Netflix shed more light on its strategy to boost distribution through pay-TV providers and telcos. Last week it announced a pact with Comcast, which is bundling Netflix with some TV packages, and inked a similar with with U.K. satcaster Sky. Those came after Netflix launched bundle offers with T-Mobile in the U.S., Proximus in Belgium, SFR Altice in France.
Those deals let Netflix benefit “from more reach, awareness and often, less friction in the signup and payment process,” the company said in the investor letter, with lower churn offsetting the lower per-subscriber fees it gets through partners. “We remain primarily a direct-to-consumer business, but we see our bundling initiative as an attractive supplemental channel,” Netflix said.
Also in its shareholder letter, Netflix called out the recent addition of Susan Rice, a former top aide to President Obama, to its board of directors. Rice is the controversial former national security adviser and U.S. ambassador to the U.N. who served during the Obama administration. “As a global company operating in over 190 countries, Susan’s expertise in international affairs will be valuable,” Netflix said.
Pictured above: “Marvel’s Jessica Jones” season 2 on Netflix, which premiered March 8
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