In the first nine months of 2018 alone, Netflix spent $8.5 billion in cash on streaming content, an investment that will pay off in the long run as long as the company continues to grow its worldwide subscriber base.
Netflix cut its outlook for the current quarter as its revenue and subscriber growth disappointed some investors, sending the streaming giant's stock tumbling almost 4 percent in after-hours trades. Netflix has already said it expects to add 8.9 million more subscribers in Q1 2019.
As for earnings, annual revenue grew 35 percent in 2018 to $16 billion and operating profits climbing to $1.6 billion. "FCF burn and the possibility of pricing related churn hitting the 2Q domestic subscribers are a slight concern but ultimately we view int'l sub growth as the main driver of the stock; we reiterate our Buy rating, and raise our PO to $450 from $440 for faster penetration assumptions in our valuation model".
Netflix's shortfall in revenue expectations overshadowed its record number of subscribers as investors hoped for a bigger payoff having increased prices for United States customers by up to 18 per cent.
Netflix calculated its TV marketshare by estimating 120 million homes watch a billion hours of TV every day in the U.S. Meanwhile, Netflix says its service streams 100 million hours of content every day on average.
But the company fell short of Wall Street's subscriber estimates sending its stock diving nearly 4% in after-hours trading on Thursday. Despite that disappointment, analysts largely cheered the results, with more than 10 firms raising their price targets as they pointed to strength in global subscriber additions, which they said would help contribute to long-term outperformance.
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The earnings report comes at the start of what could be a pivotal year for the company. But this is the first time that higher prices will hit all 58 million USA subscribers, the number Netflix reported at the end of September. Netflix also raised prices in Canada, Japan and Argentina in late 2018.
Netflix said it lost more of its customers' viewing time to the video game Fortnite than HBO, the premium cable network owned by AT&T.
Addressing the matter, the letter added: "As a result of our success with original content, we're becoming less focused on 2nd run programming [i.e. Netflix's non-original shows and movies]".
Netflix stock was down 1.9% to $346.56 in Friday's premarket session.
In its letter to investors, Netflix delivered some details on how well its highly popular "Bird Box" movie performed, saying in its first four weeks the Sandra Bullock horror film reached 80 million households.