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What Reed Hastings Credits for Netflix's Historic Growth
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Shares of Netflix (NFLX - Free Report) have soared since it posted strong Q4 results on Monday, with much of the positivity focused directly on the company’s massive subscriber growth.
At this point, most investors know that Netflix added 8.3 million new subscribers in Q4, which marked a 15% jump from the year-ago period and also represented the biggest quarter in the company’s history.Not to mention, Netflix expected it would add a total of 6.3 million new subscribers in the fourth-quarter; it ended up adding 6.36 million international users alone.
But what do the top executives at the streaming giant think led to this outsized expansion?
Global Expansion
Right off the bat, Netflix Founder and CEO Reed Hastings pointed to the company’s global expansion during its earnings interview. He noted that, although Netflix continues to invest in around the world, it is still relatively new in regions. “So we're learning better and better about how to be an effective global company, both for consumers, for governments and for content producers,” Hastings said.
Executives declined to go into details about where Netflix has experienced the most international growth. “We're very pleased with the progress that we're making through India, through Southeast Asia, through Japan,” Hastings added.
He noted that the company’s growth in many regions is similar to its first couple years of Latin American expansion, which has become a hugely successful region for Netflix.
Investors might be happy to note that much of this international growth has come through the rollout of a global, not localized, version of Netflix services. The company is gradually tailoring its product to local markets on top of adding more languages.
Netflix executives also pointed to its biggest budget film, Bright,starring Will Smith, as well as the second season of the widely popular Stranger Things as major reasons for this success. The company noted that both titles performed equally well internationally as they did in the U.S.
TV Bundles and Internet TV
Hastings also pointed out that the growth of competitors like Hulu and YouTube are positives signs because it means that internet-driven television is expanding as a whole.
Netflix also noted that its partnerships with linear-TV providers and internet services providers are just getting started. At this point, the company feels confident that bundling its services with cable providers, smart TVs, internet packages, and even cell phone companies will become more common and eventually lead to more customers.
CFO David Wells pointed out that “if you're thinking about Netflix being bundled in with a consistently lower-churn product, that has a positive benefit to the lifetime value of that subscriber.”
While Hastings shot down questions about where Netflix’s future growth could possibly come from, he did point out that greater availability in packages and bundles will help increase its user base. But he also said that Netflix’s content is what will drive the company long-term. “The real driver is to make the big titles bigger,” Hastings said.
He also noted that five years ago the company hoped it could grow its U.S. market to between 60 and 90 million. For some perspective, despite its massive 2017 gains, Netflix closed the year with just under 55 million U.S. subscribers.
Content
Netflix plans to invest in more big-budget films, such as Bright, which executives noted was a hit on the platform despite poor critical reviews domestically. However, the company pointed out that its small, low-budget and medium-size movies have also proven to be strong investments. Netflix boasted that it has proven it can make its subscription model highly profitable with any size film.
The company closed its Q4 wrap up by touting upcoming projects that will be released in Q1. Netflix pointed specifically to its new sci-fi series Altered Carbon, the second seasons of Marseille, Jessica Jones, Santa Clarita Diet and Lemony Snicket. Lastly, Netflix Chief Content Officer Ted Sarandos called out a possible surprise hit, a new coming-of-age high school comedy series set in the 1990s called Everything Sucks!
The company plans to invest $8 billion in 2018 and expects to keep expanding that figure in the following years. Netflix confirmed that it will add 80 individual film projects this year through both its own productions as well as acquisitions.
Raising Prices
Netflix raised its prices from roughly $10 to $11 during the fourth-quarter, and it hardly affected sign-ups at all. Hastings dove deep into this subject but the basic point was simple: content is king. The streaming company will use the added revenue to create more new programming. “The North Star is not the financial plan, it's the customer satisfaction,” Hasting said.
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And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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What Reed Hastings Credits for Netflix's Historic Growth
Shares of Netflix (NFLX - Free Report) have soared since it posted strong Q4 results on Monday, with much of the positivity focused directly on the company’s massive subscriber growth.
At this point, most investors know that Netflix added 8.3 million new subscribers in Q4, which marked a 15% jump from the year-ago period and also represented the biggest quarter in the company’s history.Not to mention, Netflix expected it would add a total of 6.3 million new subscribers in the fourth-quarter; it ended up adding 6.36 million international users alone.
But what do the top executives at the streaming giant think led to this outsized expansion?
Global Expansion
Right off the bat, Netflix Founder and CEO Reed Hastings pointed to the company’s global expansion during its earnings interview. He noted that, although Netflix continues to invest in around the world, it is still relatively new in regions. “So we're learning better and better about how to be an effective global company, both for consumers, for governments and for content producers,” Hastings said.
Executives declined to go into details about where Netflix has experienced the most international growth. “We're very pleased with the progress that we're making through India, through Southeast Asia, through Japan,” Hastings added.
He noted that the company’s growth in many regions is similar to its first couple years of Latin American expansion, which has become a hugely successful region for Netflix.
Investors might be happy to note that much of this international growth has come through the rollout of a global, not localized, version of Netflix services. The company is gradually tailoring its product to local markets on top of adding more languages.
Netflix executives also pointed to its biggest budget film, Bright,starring Will Smith, as well as the second season of the widely popular Stranger Things as major reasons for this success. The company noted that both titles performed equally well internationally as they did in the U.S.
TV Bundles and Internet TV
Hastings also pointed out that the growth of competitors like Hulu and YouTube are positives signs because it means that internet-driven television is expanding as a whole.
Netflix also noted that its partnerships with linear-TV providers and internet services providers are just getting started. At this point, the company feels confident that bundling its services with cable providers, smart TVs, internet packages, and even cell phone companies will become more common and eventually lead to more customers.
CFO David Wells pointed out that “if you're thinking about Netflix being bundled in with a consistently lower-churn product, that has a positive benefit to the lifetime value of that subscriber.”
While Hastings shot down questions about where Netflix’s future growth could possibly come from, he did point out that greater availability in packages and bundles will help increase its user base. But he also said that Netflix’s content is what will drive the company long-term. “The real driver is to make the big titles bigger,” Hastings said.
He also noted that five years ago the company hoped it could grow its U.S. market to between 60 and 90 million. For some perspective, despite its massive 2017 gains, Netflix closed the year with just under 55 million U.S. subscribers.
Content
Netflix plans to invest in more big-budget films, such as Bright, which executives noted was a hit on the platform despite poor critical reviews domestically. However, the company pointed out that its small, low-budget and medium-size movies have also proven to be strong investments. Netflix boasted that it has proven it can make its subscription model highly profitable with any size film.
The company closed its Q4 wrap up by touting upcoming projects that will be released in Q1. Netflix pointed specifically to its new sci-fi series Altered Carbon, the second seasons of Marseille, Jessica Jones, Santa Clarita Diet and Lemony Snicket. Lastly, Netflix Chief Content Officer Ted Sarandos called out a possible surprise hit, a new coming-of-age high school comedy series set in the 1990s called Everything Sucks!
The company plans to invest $8 billion in 2018 and expects to keep expanding that figure in the following years. Netflix confirmed that it will add 80 individual film projects this year through both its own productions as well as acquisitions.
Raising Prices
Netflix raised its prices from roughly $10 to $11 during the fourth-quarter, and it hardly affected sign-ups at all. Hastings dove deep into this subject but the basic point was simple: content is king. The streaming company will use the added revenue to create more new programming. “The North Star is not the financial plan, it's the customer satisfaction,” Hasting said.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>