Netflix reeled in 8.3 million new streaming subscribers — including almost 2 million in the U.S. — handily beating Wall Street estimates for the fourth quarter of 2017.
The record quarterly subscriber additions pushed shares of the company up more than 9% in after-hours trading. That came after Netflix shares closed up 3.2% Monday at $227.58 per share — an all-time high closing price for the stock — prior to the release of the Q4 results.
For Q4, Netflix added 1.98 million U.S. streaming subs and 6.36 million overseas. That was well above the Wall Street forecasts of net adds of 1.28 million streaming subscribers in the U.S. and 5.02 million internationally (roughly in line with Netflix’s previous guidance).
“We had a beautiful Q4, completing a great year as internet TV expands globally,” company execs said in their quarterly letter to shareholders. As of the end of 2017, Netflix had 117.6 million streaming members worldwide.
Netflix’s fourth-quarter 2017 revenue of $3.29 billion and earnings of 41 cents per share were in line with analyst expectations.
The boost in total subscribers came even as Netflix began instituting broad price increases in Q4, including in the U.S. Starting last fall, American customers on the standard two-stream plan started to see their fees increase from $9.99 to $10.99 per month.
As a result of the price hikes, Netflix’s global streaming revenue grew 35% in Q4 compared with the year-earlier quarter, faster than the 25% growth in average paid streaming memberships.
Netflix originals that debuted in Q4 included “Bright,” the big-budget action flick starring Will Smith. The film was a dud with most critics but drew a healthy 11 million U.S. viewers in the first three days of its Dec. 22 release, Nielsen estimated. Netflix announced plans for a “Bright” sequel this month. In its first month, “Bright” has become one of Netflix’s most-viewed original titles ever, the company said (but didn’t provide specific metrics).
During the fourth quarter, Netflix took a $39 million charge for “unreleased content we’ve decided not to move forward with.” The company didn’t provide any details in the shareholder letter about what that content was. [UPDATE: On the company’s earnings interview, CFO David Wells said the charge was “related to the societal reset around sexual harassment,” which appeared to be a reference to projects it canceled with Kevin Spacey after the actor was accused of sexual assault.]
Also in Q4, Netflix launched returning seasons of “Stranger Things,” “The Crown,” and “Black Mirror” and launched new series including “Godless,” “Marvel’s The Punisher” and David Fincher’s “Mindhunter.”
Netflix also disclosed plans to ratchet up marketing spending more than 50% in 2018 –increasing it from $1.3 billion to $2 billion. That’s “because our testing results indicate this is wise,” the company told shareholders. “We want great content, and we want the budget to make the hits we have really big, to drive our membership growth.”
After its huge Q4 for net adds, Netflix expects the momentum to continue. For the first quarter of 2018, the company is forecasting 6.35 million new streaming customers (versus 5 million in the year-ago quarter), comprising 1.45 million domestically and 4.9 million internationally.
In addition, the company said it expects to raise even more debt financing to produce original content. Netflix is forecasting free cash flow of negative $3 billion-$4 billion in 2018. Netflix plans to spend $7.5 billion-$8 billion on content in 2018 on a profit-and-loss basis, in line with guidance it provided investors last quarter.
“Given our track record of content investments helping to increase growth, we are excited about the growth in future years from the increased investments we are making in original content this year,” the company said.
Also Monday, reflecting its growing global footprint, Netflix announced the addition of Eutelsat CEO Rodolphe Belmer to its board. In naming Belmer, formerly CEO of France’s Canal+ Group, to its board, Netflix noted that a “large and growing percentage of our members are European.”
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