Netflix crushed its subscriber growth targets, and the stock is soaring

Reed Hastings NetflixEthan Miller/Getty ImagesNetflix CEO Reed Hastings

Netflix beat huge on its Q4 subscriber growth numbers, both in the US and internationally, trouncing both Wall Street expectations and its own guidance.

The stock popped more than 9% on the news.

Netflix also beat on EPS and revenue, which was up 36% year-over-year.

Here are the key numbers:

  • Q4 EPS (GAAP): $0.15, two cents above Wall Street forecasts of $0.13.
  • Q4 revenue: $2.48 billion, roughly inline with Wall Street estimates of $2.47 billion, and up 36% year-over-year.
  • Q4 US subscriber growth (net additions): 1.93 million, well above Wall Street forecasts of 1.38 million, and Netflix’s own guidance of 1.45 million.
  • Q4 international subscriber growth (net additions): 5.12 million, far above Wall Street forecasts of 3.78 million.
  • Q1 subscriber growth guidance (domestic): 1.5 million, below Wall Street forecasts of 1.72 million.
  • Q1 subscriber growth guidance (international): 3.7 million, compared to Wall Street forecasts of 3.5 million.

Netflix also signalled that profit margins would tick up in 2017, though the company warned that it intended to continue spending aggresively.

Big content spending

“We are in no rush to push margins up too quickly, as we want to ensure we are investing aggressively enough to

continue to lead internet TV around the world,” the company wrote in its earnings letter. Netflix will spend a whopping $6 billion on content in 2017.

Netflix said it is targeting about 7% operating margin for 2017, up from the about 4% annual operating margin the company has had for the last two years.

With regards to content, Netflix said it will continue to invest in locally content, “focusing on local content that travels pan-regionally or across multiple territories, such as Japanese anime and Turkish dramas.” It also emphasised the success of “3%,” the Brazilian sci-fi series which it said “millions” of members watched subtitled in English.

The one place Netflix fell short was in Q1 guidance for domestic subscriber growth, where it missed Wall Street’s expectations. Netflix said that softness in Q1 is due to a tough comparison with Q1 of last year, where it blew past US subscriber targets, exceeding its forecasts by 27%. The company also believes that some of its Q4 results pulled forward subscribers from potential adds in Q1.

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