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Netflix Earnings: How International Original Content Is Driving Growth

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Shares of Netflix (NFLX - Free Report) are up more than 5.4% in morning trading Thursday following the release of the company’s fourth-quarter earnings report. While Netflix surpassed our consensus estimate for earnings per share, the real story is that the video streaming giant outpaced its own estimates for subscriber growth, especially in its international business.

Earnings Success

Netflix posted earnings of $0.15 cents per share, beating our Zacks Consensus Estimate of $0.13 per share. The company basically matched our sales expectations, posting revenue figures of $2.47 billion against our estimate of $2.467 billion.

(Also Read: Netflix Stock Climbs on Fourth Quarter Earnings Beat)

Overall, Netflix added 7.05 million net new members in the quarter, surpassing its own expectations of 5.20 million. That figure includes 1.93 million new members in the U.S., exceeding the company’s forecast of 1.45 million.

Most importantly, international membership grew by 5.12 million in the quarter, which significantly outperformed its forecasted 3.75 million international adds. This growth was up 27% from the year-ago quarter’s 4.04 million net new international members and brings Netflix’s international segment to 47% of its total membership.

What’s Working?

In a shareholder letter posted on the company’s website, Netflix pointed to the increasing popularity of its original programming, especially internationally, for its impressive growth. The company claimed that its content continues to be “well-received all over the world” and highlighted its own improvements in understanding consumer wants.

“We are learning rapidly how best to match content with audience tastes around the world. It is clear to us that high quality content travels well across borders. For instance, our global originals like Marvel’s Luke Cage, The Crown and season 3 of Black Mirror continue to generate excitement and excellent viewing all across the world,” the company said.

Netflix also said that its reboot of Gilmore Girls debuted in the top 10 in every territory and Guillermo Del Toro’s Trollhunters is not only on track to become its most-watched kids original, but also performed well in its newer international territories.

However, Netflix is not just banking on its global originals to succeed in multiple markets. The company is also creating content specifically for certain international markets. For example, Netflix said that its first Brazilian original show, 3%, premiered as one of the country’s most-watched programs, “played well” in other Latin American countries, and was dubbed and subtitled into English.

Netflix said that it will continue to invest in what it calls “local programming” and is focusing on content that works pan-regionally, including Japanese anime and Turkish dramas. The company also detailed it new deal with a major Indian production studio.

“[We] announced a long-term deal with Red Chillies Entertainment, the film production company of Shah Rukh Khan, who is considered by many to be the biggest movie star on the planet. Netflix is now the exclusive global home for Khan’s new films...,” said Netflix.

Bottom Line

From our domestic perspective, it is easy to think that Netflix’s cultural hits like Stranger Things are the shows driving its success. Nevertheless, it is the continuing growth of its international business, including its focus on shows that will play well in international markets, which is really driving its growth right now.

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