Netflix’s solid 4Q eclipsed by projected slowing US growth
SAN FRANCISCO — Netflix’s video streaming service added more subscribers than ever during the crucial holiday season, but the company signaled its growth is slowing in the U.S. as it begins to roll out double-digit price increases in its biggest market.
The slightly disappointing forecast issued Thursday for the opening three months of the new year overshadowed a solid earnings report covering the final quarter of last year — a key period for Netflix because subscriptions to its service are a popular holiday gift.
Netflix ended December with 139.3 million paid subscribers, slightly better than analysts had anticipated, according to FactSet. Of that total, 58.5 million were in the U.S., in line with what Netflix had projected.
Management predicted the company will gain another 8.9 million subscribers from January to March, but only 1.6 million are expected in the U.S. That is down substantially from an increase of 2.3 million paid U.S. subscribers at the same time last year.
That downturn in the U.S. raised alarms because Netflix is starting to raise its prices in the country by 13 to 18 percent this quarter, a move that the company is making to help pay for its rising programming costs as it competes for exclusive series and films against Amazon, Hulu, AT&T and Apple.
By charging more, Netflix can continue “a virtuous cycle where you’ve got the more investment you’re putting in, the more people are finding content that they love and the more they have value in the service,” said Ted Sarandos, the company’s chief content officer, during a Thursday webcast.
But the higher U.S. prices also threaten to cause some existing subscribers to cancel the service and discourage potential new customers from joining. That phenomenon could undercut the subscriber growth that propels Netflix’s stock price more than any other factor.
Netflix’s shares fell nearly 4 percent to $340 in Thursday’s extended trading after the earnings report and forecast came out. Even so, the stock remains above its levels before the company announced the U.S. price increase earlier this week, a sign that more investors believe management is doing the right thing for the company’s long-term financial health as it continues to burn through more cash than it is bringing in.
“The fact that investors reacted negatively to what amounted to a strong performance indicates the extent to which Netflix has set a high bar,” said eMarketer analyst Paul Verna.
Netflix had a negative cash flow of $1.3 billion in fourth quarter, bringing its total for all of 2018 to a negative $3 billion.