Netflix Fourth-Quarter Earnings Report: 5 Key Takeaways

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Netflix ( NFLX ) shares raced into record high territory in early trading Tuesday after the internet television network posted a huge beat in subscriber additions in the fourth quarter, despite enacting a price increase.

[ibd-display-video id=3100183 width=50 float=left autostart=true] Netflix late Monday said it added 8.33 million new subscribers worldwide in the fourth quarter , soundly beating its target of 6.3 million. It ended the December quarter with 117.58 million streaming subscribers worldwide, including 54.75 million in the U.S. and 62.83 million in foreign markets.

Netflix stock soared 10% higher to hit a new closing high at 250.29 on the stock market today . It hit a regular-session record high of 257.71 intraday.

The stock earned a slew of price-target increases from Wall Street analysts. The most bullish of the bunch is Bernstein analyst Todd Juenger, who upped his target to 302 from 230 and kept his outperform rating.

Here are five key takeaways from Netflix's fourth-quarter earnings report:

1. Netflix Price Increases Don't Slow Subscriber Growth

Netflix was conservative with its fourth-quarter guidance because of the price increases announced to its service plans in early October, Netflix Chief Financial Officer David Wells said on an investor webcast Monday.

In the U.S., it raised the price of its midrange plan, which allows high-definition video streaming on two devices at a time, to $10.99 a month from $9.99. It upped the price of its top-tier plan, which allows ultra-high-definition video streaming on up to four screens at the same time, to $13.99 a month from $11.99. Netflix kept its basic plan, which allows standard-definition video streaming on one device at a time, at $7.99 a month. It also hiked its prices in Europe.

Despite the price increases, Netflix had a "great" quarter for subscriber additions, thanks to the strength of its content offering, Wells said.

The company credited hit original content such as TV series "Stranger Things" and "The Crown" and movies like "Bright" for its subscriber gains in the period.

"We saw very little effect on sign-ups and growth" from the price increases, Netflix Chief Executive Reed Hastings said on the webcast. "Our content is making us a primary focus for consumers' entertainment. And so our responsibility is then to take that increased revenue and turn that into even better content. That's the fundamental deal. And consumers are tolerant as long as something's improving."

2. More Subscribers To Be Had In U.S. Market

Netflix added nearly 2 million U.S. streaming subscribers in the fourth quarter, beating its target for 1.25 million.

Hastings noted that the company predicted five years ago it could grow to 60 million to 90 million subscribers in the U.S. alone. At 55 million U.S. streaming subscribers today, it hasn't even hit the low end of that projection, he said.

Netflix expects to get late adopters to its service through deals with cable and other pay-TV services. Those arrangements are designed to make it easy for consumers to sign up for Netflix through their current pay-TV provider, Netflix Chief Product Officer Greg Peters said on the webcast.

3. Disney Streaming Service 'Will Be Very Successful'

Netflix management believes the internet television market will be able to support many successful streaming services.

It cited ( AMZN ) and Apple ( AAPL ) as two rivals to watch in the year ahead, with Walt Disney ( DIS ) joining the fray in 2019.

"Amazon Studios is likely to bring in a strong new leader given their large content budgets, and Apple is growing its programming, which we presume will either be bundled with

Apple Music or with iOS," Netflix executives said in a letter to shareholders.

Hastings said he's looking forward to Disney's direct-to-consumer streaming video offering and expects to be a subscriber himself.

"We think (it) will be very successful because Disney has super strong brands," Hastings said. "We don't see it as a threat to us any more than Hulu has been."

4. 'Bright' Movie Proved To Be Critic-Proof

Netflix's big-budget fantasy action movie "Bright" was savaged by critics, but Netflix subscribers loved it.

"The consumer response, the viewer response, to the film has been great," Netflix Chief Content Officer Ted Sarandos said on the webcast. "It's one of our most watched pieces of original content, meaning TV show or film, that we've ever had on Netflix."

A better indicator than critics' reviews are user reviews on Rotten Tomatoes and user ratings on IMDb, Sarandos said.

"The critics are pretty disconnected from the mass appeal," Hastings said.

"Bright" received just 26% positive reviews from critics, according to aggregator Rotten Tomatoes, but the audience score for the movie is 86% positive.

"Bright" reportedly cost $90 million to make and stars Will Smith and Joel Edgerton as cop partners in an alternate present-day where humans, orcs, elves and fairies coexist.

5. Netflix Signals Increasing Profitability Ahead

Netflix said it expects to spend $7.5 billion to $8 billion on content in 2018, but that spending has grown along with Netflix's subscriber base, Wells said.

However, Netflix is seeing the factors influencing its working capital needs on content starting to moderate, he said.

Wall Street has been waiting for Netflix to take its foot off the accelerator when it comes to content spending and focus more on profitability and monetizing its huge user base.

Netflix earned 41 cents a share, up 173% year over year, on sales of $3.29 billion, up 33%, for the December quarter.

For the March quarter, Netflix expects to earn 63 cents a share, up 58%, on sales of $3.69 billion, up 40%.


Netflix Stock Jumps On Big Increase In New Subscribers

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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