Netflix adds 9 million paying subscribers, but stock falls

Netflix is quickly approaching 150 million subscribers.

Netflix (NFLX) said Thursday that it added nearly 9 million new paying subscribers during the final three months of 2018, beating its own expectations of 7.6 million new subscribers.

The service now has 139 million subscribers globally. It expects to add another 8.9 million subscribers in the quarter that ends in March, the vast majority of which are expected to come from strong growth in its international markets.

Expectations were high for the company heading into the holiday quarter report. The stock had soared roughly 50% from its low hit in late December amid a broader market sell-off.

Netflix stock was down about 3% in after hours trading Thursday following the report.

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The earnings report comes at the start of what could be a pivotal year for the company. Two days before releasing the fourth quarter earnings report, Netflix unveiled plans to raise its monthly subscriber prices in the U.S. by $1-$2 per month, depending on the membership plan.

In a letter to shareholders Thursday, Netflix said it expects the price hike to be “phased in” for existing customers in the first two quarters of 2019. The pricing change takes effect immediately for new customers.

The price increase could help Netflix foot the bill for its staggering spending spree on content. Netflix previously said it expected to spend $8 billion on programming in 2018, up from an estimated $6 billion the year before.

In an analyst interview that was posted after the earnings report Thursday, Netflix’s Vice President of Finance and Investor Relations Spencer Wang did not explicitly state a content budget for 2019, but signaled that there will be “higher content spend” going forward.

But this latest price hike comes at a time when the streaming market is about to get even more crowded. A host of deep-pocketed competitors are expected to launch streaming services this year, including Apple, Disney and WarnerMedia, the parent company of CNN. That’s in addition to rival services on the market from Amazon, Hulu and Google’s YouTube.

“The latest price increase may slow domestic subscriber growth dramatically this year,” Michael Pachter, an analyst with Wedbush, wrote in an investor note Tuesday. He noted that streaming options from Amazon and Hulu are now slightly more affordable than Netflix.

Netflix’s growth in the U.S has slowed considerably in recent years as it has saturated the market. Of the 8.8 million paying global subscribers added in the holiday quarter, just 1.5 million were domestic.

But there may still be room to grow. “In the US, we earn around 10% of television screen time and less than that of mobile screen time,” the company said in its letter to shareholders. Its focus is on growing usage by improving the overall viewing experience for customers.

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“Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for our members,” the company said, referencing the name of Disney’s new streaming service that is scheduled for launch this year.

“I think about it really as us winning time away, entertainment time, from other activities,” Reed Hastings, Netflix’s CEO, said in the interview. “Instead of doing Xbox or Fortnite or YouTube or HBO or a long list, we want to win and provide a better experience.”

The key to that effort is Netflix’s years-long and costly bet on original programming. And on Thursday, Netflix did something unusual for the company: it released viewership numbers for several of its TV shows.

Netflix estimates that Bird Box, its buzzy film starring Sandra Bullock, was viewed by more than 80 million members in its first four weeks. The company also said that “You,” a new thriller TV series, was watched by more than 40 million members in its first four weeks.

The earnings report did not indicate whether the viewership numbers have been vetted by a third party.

“These are less financial metrics as they are a cultural metric,” Ted Sarandos, Netflix’s chief content officer, said on the call. He compared these stats to box office numbers and noted their potential to get people talking about the show or movie is popular at that moment.

“What’s important is for part of your Netflix subscription, you are in the zeitgeist,” he said. “You’re watching the programming that the rest of the world is loving at the same time.”

More than that, though, the numbers may send a clear message to both investors and Hollywood talent: yes, people really are watching.