COMPANY TOWN

Global growth pushes Netflix past profit forecast

Global streaming giant Netflix Inc. further burnished its image as a Hollywood heavyweight Tuesday, reporting stronger than anticipated profit powered by a rapid growth in its international customer base.

Netflix said it finished the year with nearly 75 million members, for a net gain of 17 million new members. That level was even higher than the 74 million Netflix had projected for the year back in October, bolstering its image as a growing power in entertainment.

The growth in subscribers — a key metric for investors — fueled a 23% jump in revenue to $1.82 billion in the fourth quarter of 2015. The Los Gatos, Calif., company reported a profit of $43.2 million, or 10 cents a share, down from $83.4 million, or 19 cents a share, a year earlier.

Despite the profit decline, the results were far better than Wall Street had predicted. Analysts had expected Netflix to post earnings of 2 cents per share on $1.83 billion in revenue, according to a consensus estimate from Thomson Reuters.

Results were released after markets closed. Shares closed Tuesday at $107.89 but surged as high as 8% in after-hours trading.

Netflix, which has brought sweeping changes to how Americans watch television and posed new challenges for traditional TV networks, has become a Wall Street favorite.

Its shares have climbed 84% in the last 12 months as investors have cheered the company's rapid global growth in subscribers.

“It's impressive that they're keeping their revenue up,” said James McQuivey, an analyst at Forrester Research. “And if they can actually make money off of these people as they're coming in, there's really no reason why Netflix a year from now won't still be impressing Wall Street.”

In the fourth quarter alone, Netflix said it brought in 5.59 million members because of the popularity of such series as Aziz Ansari's “Master of None,” Marvel's “Jessica Jones” and the much-talked-about show “Making a Murderer.”

The vast majority of the subscriber growth — 4.04 million members — came from international markets where Netflix has recently launched, including Japan, Spain, Portugal and Italy.

“What we're seeing basically is that this on-demand, Internet TV — watch whenever, wherever you want — it's very popular wherever you go in the world,” said Netflix Chief Executive Reed Hastings in a presentation to investors.

Netflix announced this month that it was expanding its service to 130 additional countries — including Russia and Saudi Arabia — bringing its total to 190 countries and reaching nearly every nation in the world, except China.

With the expanded global TV network, Netflix expects to add a record 6 million members in its current first quarter of 2016.

The company estimates it will earn 3 cents a share on $1.81 billion in revenue when it closes the current quarter.

Investors, however, are keeping close watch on Netflix's flagging business in the United States.

The global streaming service reported a slowdown in its domestic business in the fourth quarter with 1.56 million subscribers in the U.S., short of the company's projections of 1.65 million and down from the 1.9 million members it added during the same period a year ago.

Netflix shares tumbled last fall when the company reported slower than expected domestic subscriber numbers in the third quarter.

Netflix said the slowing pace of new subscriptions at home reflected a natural maturation of its business, which already has a high penetration in the United States.

“We did anticipate that net additions would be lighter year-on-year,” said chief financial officer David Wells in a presentation to investors. “The next 50 million are a little harder than the first 50 million in terms of growth.”

Netflix's decline in profit reflects the fact that Netflix has been spending heavily on new shows to expand its service. It is expected to spend $5 billion on new and acquired shows this year alone.

In fiscal 2016, Netflix plans to make 600 hours of original programming, up from 450 hours in 2015. The new shows include 31 TV series, 10 new feature films, 30 children's shows, 12 documentaries and 10 stand-up comedy specials.

Last weekend, Netflix announced premiere dates for 11 upcoming shows, including “Unbreakable Kimmy Schmidt” and “Kong: King of the Apes,” an animated children's series based on King Kong.

To help make up for its heavy spending on content, Netflix recently raised the price of its popular streaming subscription plan by a dollar to $9.99 a month for new subscribers in the U.S., Canada and Latin America.

Netflix, however, is facing some pushback from studio executives who are increasingly cautious about licensing their movies and TV shows to Netflix, fearing that doing so will undermine their own businesses.

However, Ted Sarandos, chief content officer at Netflix, has downplayed fears that the company is spending money on original shows out of concern that studios may withhold programs from the service.

“We're very pleased with the results of the originals spend, that's what's driving it up — not fear of being cut off from either end,” he said.

Hastings added that their shows carry well in international markets.

“What's amazing is we're seeing some of our new shows like ‘Making a Murderer' not only be huge here in the U.S., but it's emerging as a big hit around the world for us,” Hastings said.

The fourth quarter also marked Netflix's foray into making original films with the launches of “Beasts of No Nation” and “Ridiculous 6.” Sarandos told analysts they've been “thrilled” with the viewing the films have amassed worldwide.

“It was a great first swing with ‘Ridiculous 6' and ‘Beasts of No Nation,'” Sarandos said. Sarandos, however, did not disclose any viewership data for the films.

Netflix has faced mounting criticism from traditional TV rivals over the company's refusal to share viewership numbers.

Hastings, in a letter to shareholders on Tuesday, defended the company's tight-lipped approach, emphasizing that Netflix is a subscription service that doesn't rely on advertising or affiliate fees.

yvonne.villarreal@latimes.com

Copyright © 2016, Los Angeles Times

UPDATE

10:28 p.m.: Updates with additional details and background

Originally posted at 2:52 p.m.

70°