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Netflix 4Q subscriber growth tops expectations, but guidance disappoints

Emily McCormick

Netflix (NFLX) added more new paying subscribers in the fourth quarter of 2019 than expected, driven by growth in its international segments even as competition from new streaming services like Disney+ and Apple TV+ entered its home market.

However, Netflix’s forecast for subscriber growth in the current quarter fell short of Wall Street’s estimates.

Here were the main results from the report, compared to consensus expectations from Bloomberg:

  • Revenue: $5.47 billion vs. $5.45 billion expected

  • Earnings per share: $1.30, vs. $0.30 Y/Y

  • Global streaming net paid subscriber additions: +8.76 million vs. +7.65 million expected

Netflix said it expects to add 7 million paying members in the current quarter, short of the 7.82 million consensus analysts anticipated. That would mark a 27% decline from the 9.6 million subscribers Netflix added in the year-ago quarter, which had been an all-time high for quarterly paid net additions.

For the fourth quarter, Netflix had guided toward adding 7.6 million net streaming subscribers globally, comprising 600,000 adds in the U.S. and 7 million internationally. But Netflix’s actual fourth-quarter results put it in-line with the user growth it saw in the same period last year, when it added 8.8 million global net subscribers in the final three months of the year.

Netflix exited the fourth quarter with 167.09 million global streaming paid memberships.

Shares of Netflix fluctuated in after-hours trading, and were up 0.86% to $341.02 each as of 4:29 p.m. ET.

International growth

Most of Netflix’s fourth-quarter subscriber growth came from outside of its home market. Paid net additions in the U.S. and Canada totaled just 550,000, a marked decline from the 1.75 million added in the year-ago quarter.

“Our low membership in UCAN (the U.S. and Canada) is probably due to our recent price changes and to U.S. competitive launches,” the company said in a letter to shareholders. “We have seen more muted impact from competitive launches outside the U.S. As always, we are working hard to improve our service to combat these factors and push net adds higher over time.”

In early 2019, Netflix raised prices for its popular Standard plan by $2 to $12.99 per month for U.S. users. Its Premium and Basic plans each increased in price for domestic subscribers as well.

In mid-December, Netflix filed additional disclosures about its streaming revenue and monetization by region, calling attention to the rapid pace of growth in its international segments. Each of its Asia-Pacific and Europe, Middle East and Africa (EMEA) segments more than doubled revenues and subscriber numbers in the past two years through the third quarter of 2019. Previously, Netflix had only broken out results for the U.S., and then lumped international into one catch-all category.

Netflix in the fourth quarter also rolled out a lower price-point, mobile-only plan for subscribers in India, Indonesia and Malaysia. Greg Peters, Netflix chief product officer, said during a call with analysts Tuesday that the mobile-only tier saw an increase in subscribers and retention, and that the test would expand to other regions.


The fourth quarter was the first in which Netflix had to contend with streaming newcomer Disney (DIS), which launched its eponymously named Disney+ platform in the U.S. on Nov. 12. The platform – with its troves of new and legacy Star Wars, Marvel and animated content – was widely seen as the more imminent threat to Netflix versus some of the other nascent platforms with less robust content libraries.

On Tuesday, Disney announced it would be launching Disney+ a week early in the UK and other Western European markets on March 24.

Netflix, however, stuck to similar messaging in its fourth-quarter update letter as it had in previous communications with investors, underscoring the opportunity for multiple services to come out as winners in the streaming wars.

“We have a big headstart in streaming and will work to build on that by focusing on the same thing we have focused on for the past 22 years – pleasing members. We believe if we do that well, Netflix will continue to prosper,” the company said in its update letter.

“As an example, in Q4, despite the big debut of Disney+ and the launch of Apple TV+, our viewing per membership grew both globally and in the U.S. on a year over year basis, consistent with recent quarters,” the company added.

A key tenet of Netflix’s strategy to maintain its leadership has been to invest huge sums into content creation, which has led to accolades including 24 Oscar nominations, but also kept the company’s free cash flow firmly in the red. Netflix’s full-year free cash flow was negative $3.3 billion, “which we believe is the peak in our annual FCF deficit,” it said. Netflix expects 2020 free cash flow will be around negative $2.5 billion.

Netflix spent around $15 billion in cash investment in 2019, and expects to grow its content spending around 20% this year, chief financial officer Spencer Neumann said during a call with analysts Tuesday.

Marc Randolph, co-founder and first CEO of Netflix, told Yahoo Finance Friday he believed Netflix has been, and will continue to be, unfazed by the competition.

“I quite frankly don’t think Netflix feels threatened by any of these entries. I think they still continue to see their competition not Disney, not HBO Max, not Peacock, but they see their competition as other forms of television consumption,” Randolph said. HBO Max and NBCUniversal’s Peacock are each slated to launch later in 2020.

“I mean still more than half of TV now is consumed linearly, and all these companies will benefit from expanding into that category,” Randolph said. “I don’t think they feel they need to respond to these small new entries coming in. It’ll be a long while before that becomes any kind of a threat.”

The Netflix logo is shown in this illustration photograph in Encinitas, California October 14, 2014.   REUTERS/Mike Blake/File Photo
The Netflix logo is shown in this illustration photograph in Encinitas, California October 14, 2014. REUTERS/Mike Blake/File Photo

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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