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Shares of video streaming giant, Netflix, Inc. (NFLX - Free Report) jumped nearly 8% in the after-hours session following its better-than-expected fourth-quarter 2016 earnings.
Earnings of 15 cents per share and revenues of $2.478 billion were well ahead of the Zacks Consensus Estimate of 13 cents and $2.468 billion, respectively. On a year-over-year basis, earnings increased more than twofold while revenues increased nearly 36%.
Netflix’s focus on international expansion and original content has paid off with the streaming giant adding 5.12 million net new additions overseas in the quarter. International Streaming revenues (38.3% of revenues) soared 67.3% year over year to $948 million driven by an increase in paid members.
Meanwhile, Domestic Streaming revenues (56.6% of revenues) improved 26.9% from the year-ago quarter to about $1.403 billion.
However, the DVD business continues to be in trouble with revenues (5.1% of revenues) declining 16.3% year over year to $126.4 million.
Subscriber Base
In the quarter, Netflix recorded total 7.05 million new members, bringing the total to approximately 93.8 million subscribers across the globe. Paid streaming members totaled 89.09 million, up from 70.84 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 49.43 million, up from 44.74 million in the prior-year quarter. Paid members increased to 47.91 million from 43.40 million in the prior-year quarter.
In the International Streaming segment, the company recorded 44.37 million members compared with 30.02 million in the prior year quarter. Paid members were approximately 41.19 million, up from 27.44 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 21.7% compared with 19.2% in the year-ago quarter.
Operating income has more than doubled year over year to $153.9 million. Operating margin increased 290 basis points to 6.2%.
Balance Sheet
Netflix had $1.734 billion in cash and cash equivalents (and short-term investments) as of Dec 31, 2016 compared with $2.310 billion as of Dec 31, 2015.
Cash used in operations in the quarter was $557.2 million compared with $244.7 million cash used in operations in the prior-year quarter. The company reported free cash outflow of $639 million.
Outlook
For the first quarter of 2017, management forecasts earnings of 37 cents per share.
Domestic and international streaming revenues are expected to be $1.471 billion and $1.045 billion, respectively. Total streaming revenues are expected to be $2.516 billion.
Management expects to add 1.50 million subscribers in the domestic streaming segment and 3.70 million subscribers in the international segment. Domestic streaming contribution profit is expected to be $607 million. International streaming segment is expected to report profits to the tune of $16 million. Netflix estimates U.S. contribution margin to be around 41.3% in the quarter.
Netflix forecasts operating income of $239 million for the quarter.
Our Take
Netflix has been drawing strength from its growing portfolio of original content. This apart, it remains focused on international expansion as it battles slowing domestic subscriber growth to solidify presence in markets like India and Korea. The company will spend $6 billion in 2017 on content.
Over the past one year, shares have gained 23.51% compared with the Zacks Broadcasting-Radio and Television industry’s gain of 12.86%.
Apart from this, the company is also forming strategic partnerships with the likes of TiVo Corp and others to boost its content further. Moreover, Netflix has been strategically placing itself to meet the needs of the new-age binge-watchers.
However, investors need to watch out for astronomically high costs that come with rapid international expansion and the addition of relevant content. These aside, stiff competition from bellwethers like Amazon.com (AMZN - Free Report) , Hulu and Time Warner’s HBO is a concern. Also, Facebook and Twitter Inc. are making efforts to improve video viewing, which remains a cause of concern.
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Netflix (NFLX) Reports Solid Q4 Earnings, Subscriber Growth
Shares of video streaming giant, Netflix, Inc. (NFLX - Free Report) jumped nearly 8% in the after-hours session following its better-than-expected fourth-quarter 2016 earnings.
Earnings of 15 cents per share and revenues of $2.478 billion were well ahead of the Zacks Consensus Estimate of 13 cents and $2.468 billion, respectively. On a year-over-year basis, earnings increased more than twofold while revenues increased nearly 36%.
Netflix’s focus on international expansion and original content has paid off with the streaming giant adding 5.12 million net new additions overseas in the quarter. International Streaming revenues (38.3% of revenues) soared 67.3% year over year to $948 million driven by an increase in paid members.
Meanwhile, Domestic Streaming revenues (56.6% of revenues) improved 26.9% from the year-ago quarter to about $1.403 billion.
However, the DVD business continues to be in trouble with revenues (5.1% of revenues) declining 16.3% year over year to $126.4 million.
Subscriber Base
In the quarter, Netflix recorded total 7.05 million new members, bringing the total to approximately 93.8 million subscribers across the globe. Paid streaming members totaled 89.09 million, up from 70.84 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 49.43 million, up from 44.74 million in the prior-year quarter. Paid members increased to 47.91 million from 43.40 million in the prior-year quarter.
Netflix Inc. Price, Consensus and EPS Surprise
Netflix Inc. Price, Consensus and EPS Surprise | Netflix Inc. Quote
In the International Streaming segment, the company recorded 44.37 million members compared with 30.02 million in the prior year quarter. Paid members were approximately 41.19 million, up from 27.44 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 21.7% compared with 19.2% in the year-ago quarter.
Operating income has more than doubled year over year to $153.9 million. Operating margin increased 290 basis points to 6.2%.
Balance Sheet
Netflix had $1.734 billion in cash and cash equivalents (and short-term investments) as of Dec 31, 2016 compared with $2.310 billion as of Dec 31, 2015.
Cash used in operations in the quarter was $557.2 million compared with $244.7 million cash used in operations in the prior-year quarter. The company reported free cash outflow of $639 million.
Outlook
For the first quarter of 2017, management forecasts earnings of 37 cents per share.
Domestic and international streaming revenues are expected to be $1.471 billion and $1.045 billion, respectively. Total streaming revenues are expected to be $2.516 billion.
Management expects to add 1.50 million subscribers in the domestic streaming segment and 3.70 million subscribers in the international segment. Domestic streaming contribution profit is expected to be $607 million. International streaming segment is expected to report profits to the tune of $16 million. Netflix estimates U.S. contribution margin to be around 41.3% in the quarter.
Netflix forecasts operating income of $239 million for the quarter.
Our Take
Netflix has been drawing strength from its growing portfolio of original content. This apart, it remains focused on international expansion as it battles slowing domestic subscriber growth to solidify presence in markets like India and Korea. The company will spend $6 billion in 2017 on content.
Over the past one year, shares have gained 23.51% compared with the Zacks Broadcasting-Radio and Television industry’s gain of 12.86%.
Apart from this, the company is also forming strategic partnerships with the likes of TiVo Corp and others to boost its content further. Moreover, Netflix has been strategically placing itself to meet the needs of the new-age binge-watchers.
However, investors need to watch out for astronomically high costs that come with rapid international expansion and the addition of relevant content. These aside, stiff competition from bellwethers like Amazon.com (AMZN - Free Report) , Hulu and Time Warner’s HBO is a concern. Also, Facebook and Twitter Inc. are making efforts to improve video viewing, which remains a cause of concern.
At present, Netflix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>