Netflix is growing at a stunning rate — and so is its profit



The Netflix original “La Casa de Papel,” or “Money Heist,” is the most watched non-English show in the streaming service’s history.



Netflix Inc. on Monday detailed stunning growth for a tech company that has been around for more than two decades, as its hefty spending on content and international expansion pays off in a big way.

Netflix NFLX, -1.48%  reported first-quarter results that far outpaced Wall Street’s expectations Monday, adding 7.4 million more streaming subscribers, more than the 6.6 million expected, with 5 million of them outside the U.S. Higher subscription prices for Netflix’s streaming service, combined with the growing customer base, gave a huge boost for revenue — Netflix said its 43% year-over-year jump in streaming revenue was its best in history.

Netflix profit is also growing at an astounding rate: The first quarter had its biggest profit total yet, topping the previous period’s record, and Netflix forecast another record-breaking profit total in the current quarter. Netflix reported $290.1 million in net income for the first quarter, more profit in three months than the streaming giant had for the entire year of 2016. As was noted in the MarketWatch live blog, if the company meets its second-quarter forecast of $358 million in profit, it will earn more in the first half of 2018 than all of 2017, when it reported an annual profit of $558.9 million.

The news sent Netflix stock up 6% in after-hours trading. Shares have been surging in 2018, climbing about 60% while the S&P 500 index SPX, -0.85%  has gained just 0.2% in a roller coaster of a year.

Netflix attributed its stunning growth to its variety of extremely popular content, both inside and outside the U.S. Its international segment reached 50% of revenue, and 55% of its total memberships, and there are no signs that it is stopping. Netflix said in its letter to shareholders that it is adding more popular shows in other languages; a new Spanish-language heist thriller called “La Casa de Papel,” or “Money Heist” in English, became the most watched non-English series on Netflix ever, executives said.

Netflix’s big investment in international markets and content has been a bit of a thorn in the side of some investors over the years. The company is now seeing the fruits of those payouts, as well as its long-term bets on content plays. It reminded shareholders that it will have $7.5 billion to $8 billion in content expenses in 2018 across a variety of formats, but continued growth should placate any investors concerned about Netflix’s spending.

Daniel Ives, head of technology research at GBH Insights, called the quarter “eye popping” in a note to clients, saying that Netflix has a number of levers to fuel its next phase of growth.

“Both U.S. and especially international consumers and this quarter reiterated this message ‘loud and clear’ as the king of content continues to steamroll ahead,” Ives wrote.

And if Netflix runs into any issues with subscriber growth, it could again go to the well of increasing subscription prices. The recent increase pushed the average price of a Netflix subscription up by double-digit percentages both in the U.S. and internationally in the first quarter. Chief Executive Reed Hastings addressed that in Monday’s executive interview.

“You have to earn it first by doing spectacular content that everyone wants to see,” Hastings said in response to a question about average subscription prices. “But if you do that, you can get people to pay a little bit more because you can invest more and further improve.”

At this point, the company has proven that it can competently increase subscription prices without sparking an exodus like the Qwikster debacle in the early days of streaming. With the international expansion continuing to fuel subscriber growth and fresh content keeping all those subscribers on the platform, it looks like a star that will continue to shine.

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Author: RV-Vijay