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Netflix streams higher after forecast-busting Q4 results; crosses US$100bn mark

Last updated: 14:20 23 Jan 2018 GMT, First published: 05:20 23 Jan 2018 GMT

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Even a US$39mln one-off charge related to unaired episodes of House of Cards couldn’t deter investors

Netflix Inc (NASDAQ:NFLX) is now valued at more than US$100bn for the first time in its history after the video streaming juggernaut saw its membership numbers soar past 117mln in 2017.

The California-based company said it believed its huge investment into original programming in recent years is paying off, culminating in a record 8.3mln subscribers being added in the three months to the end of December.

Wall Street analysts had been expecting 6.3mln members in the period.

‘Big investments paying off’

Once again, Netflix managed to grow its membership – and pretty significantly, as well – in every quarter last year.

Viewers were drawn in by new seasons of shows including The Crown and Stranger Things – with the latter cementing its place as a “global phenomenon” following the release of its second series.

Total revenues in the final three months of 2017 rose sharply to US$3.29bn, compared to US$2.48bn in the year-ago quarter.

House of Cards costs Netflix US$39mln

Operating profits – before investments into the business are factored in – came in at US$186mln for the period – almost three times that achieved a year ago (US$67mln).

Wall Street didn’t even blink at a US$39mln non-cash charge reportedly related to two episodes of House of Cards that will never be aired due to the scandal surrounding its former star, Kevin Spacey.

“We had a beautiful Q4, completing a great year as internet TV expands globally,” said Netflix.

“We believe our big investments are paying off. In 2017, average streaming hours per membership grew by 9% year-over-year.”

Set to spend another US$8bn on programming in 2018

Amid strong competition from the likes of Disney, Hulu and Amazon, Netflix isn’t standing still though.

It plans to spend between US$7.5bn and US$8bn on creating new content this year, as well as a further US$2bn on marketing and US$1.3bn in technology and development investments.

With international subscribers now outnumbering those in its home US market, Netflix is set to release 30 new international series in 2018, including projects from France, Poland, India, Korea and Japan.

Obviously, it thinks the massive investment will be worth it and the company is guiding for net adds – subscribers gained minus subscribers lost – of 6.35mln in the first quarter of this year, while it is looking to boost operating margins up to 10%.

Is Netflix worried about the competition?

In short, it would appear not.

As streaming content over the internet becomes more popular, it’s no surprise to see more and more companies trying to crack what is quickly becoming a very lucrative market.

Giants such as Disney, Amazon and Apple are all in the process of beefing up their offering, as are smaller companies such as Hulu (which is backed by Disney, Fox and Comcast).

But Netflix boss Reed Hastings doesn’t seem fazed by it all; in fact, he’s welcoming the competition.

In a conference call with analysts, he said that his company will be able to learn from what the others do, and he expects most of them to be successful.

“I think in particular Disney, with its strength of brand and unique content, will have some real success. I know I'll be a subscriber of it for my own personal watching. The same way as many Disney and Fox executives also subscribe to Netflix,” Hastings said on a conference call with analysts.

Netflix, Hulu, Disney etc can co-exist, says boss

He also pointed out that because the entertainment market is so “vast”, it can support many successful services rather than just one.

In recent years Netflix has been looking to produce more and more original content which should also offset any impact from stronger competition.

It works in a couple of ways: firstly, it develops customer loyalty as subscribers can only tune in to watch their favourite show, such as Stranger Things or Black Mirror, on Netflix.

It also means Netflix isn’t as reliant on third-party content providers like it was in the past, so if Disney wants to remove all of its films (as it has said it will do), the Netflix still has plenty of other quality films and TV series on offer.

The stock jumped a further 10.3% to US$251.10 early on Tuesday.

--Updates for additional info and share price--

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