Netflix Sees Another Record Quarter

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In their earnings call for Q1 2019, Netflix announces $4.5 billion in revenue and 9.6 million additional paid subscribers.

Q1 2019

Netflix (NASDAQ:NFLX) posted their Q1 2019 earnings today, which were slightly above expectations almost across the board. The biggest news was the $4.5 billion in revenue from the quarter, which was another record for the company. The revenue was achieved through two ways, the first was increasing paid subscribers; up 4% from their domestic U.S. market and 10% internationally. The second was the increase in price for the service; this is being phased in over Q1 and Q2 domestically, as well as in different markets internationally as well. Netflix noted that international revenue was 2% lower based on currency fluctuation during the quarter.
Some of the details from the earnings report are below:

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  • Average streaming paid memberships increased 26% year over year.
  • On a F/X-neutral basis, Q1’19 revenue grew 28% year over year.
  • Operating margin of 10.2% exceeded our beginning-of-quarter expectation as some spending was shifted from Q1 to later in the year.
  • Paid net adds in Q1 were 9.6 million (with 1.74m in the US and 7.86m internationally), up 16% year over year, representing a new quarterly record.

Netflix Content

With the shift to creating more original content over the last few years, Netflix has always claimed their content performs well. This quarter they noted that Netflix Originals accounted for all top 10 television shows on the platform. This information may be slightly misleading though, as the content is typically licensed regionally, but Netflix created content is available globally which may give their own content the advantage.

Competition

If you review our previous coverage we’ve noted Netflix has always compared themselves against other platforms in the percentage of screen viewing time. This quarter was no different noting they compete against YouTube, Facebook, Fortnite etc. Then when asked about Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) entering the streaming business they said in their letter to shareholders:

We don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings. We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing

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In their interview, they touted the same sentiment, then reiterated that a similar shift in loss of content happened in 2017 when 21st Century Fox started removing their content from the service and hinted at the growth of Netflix since.

Closing Remarks

Netflix performed above expectations and had an excellent quarter, with continuous user growth and increased prices raising revenue for the company. They also have begun to test out different service offerings worldwide to be able to attract users in different price segments while trying not to cannibalize their own sales. They also plan to share more viewership data with producers and users so content creators can have a better idea of what consumers want, and consumers can get more detailed data on what is popular on the service. Continuing to grow their own content will be very important as they will presumably lose the Disney catalog and possibly enter a price war with them, but by all financial indicators, Netflix seems to be making the right decisions to grow their paid subscriber base and satisfy shareholders.

We noted in an article today the importance of Netflix as a platform and the importance they have culturally. The stock is trading up roughly 3% in after-hours trading from the positive earnings call and increased price target from Deutsche Bank (ETR:DBK).

 

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