Netflix subscriptions increase as it boosts original content

Netflix paid subscriptions increased 26% to 139.3 million in the fourth quarter as the streaming giant continued to attract more customers and bolster its library of original programming.

The Los Gatos, Calif., company cited strong growth in original content, with more than 80 million households seeing the science fiction thriller “Bird Box” in its first four weeks on Netflix.

The numbers:

Netflix earned $133.9 million, or 30 cents a share, on revenue of nearly $4.2 billion during the fourth quarter. That compared with $185.5 million, or 41 cents a share, on revenue of nearly $3.3 billion during the same quarter in 2017.

For all of 2018, Netflix earned $1.2 billion, or $2.68 a share, on revenue of nearly $15.8 billion. That compared with net income of $558.9 million, or $1.25 a share, on revenue of nearly $11.7 billion in 2017.

The earnings beat Wall Street expectations, while revenue remained in line with their estimates. Analysts polled by FactSet had estimated earnings of 24 cents a share and $4.2 billion in revenue for the fourth quarter and $2.65 a share and $15.8 billion in revenue for the full year.

The takeaway:

Despite the strong results, the company still faces head winds. Netflix will probably lose licensed content from 21st Century Fox and Walt Disney Co. when Disney later this year launches its own streaming service, which will put more pressure on Netflix to harness its original programs to keep subscribers happy.

Netflix spent $10 billion on original content last year, more than competitors such as Amazon and Hulu, according to estimates from venture capital firm Loup Ventures. Netflix is expected to increase its spending to $13.5 billion in 2019, the venture firm said. The company plans to continue to finance its spending by taking on more debt. Netflix said in October it planned to issue about $2 billion in bonds to pay for content acquisitions and other efforts.

Netflix downplayed the rivalry among other streaming services.

Chief Executive Reed Hastings estimated that about 1 billion hours of television is consumed each day in the U.S. and Netflix accounts for about 10 % of that.

“We compete so broadly with all of these different providers that any one provider entering only makes a difference on the margin,” Hastings said Thursday in a video call with analysts.

The company said it faces more screen time competition from online video game “Fortnite” than it does HBO, and said it can differentiate itself through its content.

Netflix also recently announced another price increase. The company said its most popular plan was increasing to $12.99 a month, up from $10.99, which could cause some customers to ditch the service for cheaper alternatives. Netflix’s lowest priced plan is $8.99 a month, compared with Hulu’s $7.99 a month with ads.

The Outlook:

The company said it expects first-quarter revenue will increase 21% over the same quarter last year. Netflix also said it would add 8.9 million paying subscribers in the first quarter, higher than what EMarketer media analyst Paul Verna had anticipated, which he says bodes well for the streaming video giant. “The bottom line is that Netflix remains the uncontested leader in the subscription video space,” Verna said.

Netflix shares rose $1.80, or 0.5%, to $353.19 in regular trading Thursday but fell 4% after the market closed.