Netflix Reports Higher Earnings, Sub Growth

Average streaming hours up 9%

Netflix reported fourth-quarter earnings as its domestic and international subscribers continued to grow.

With more growth in subscribers, the company said it planned to increase its spending on content to as much as $8 million in 2018.

The company said fourth quarter net income was $186 million, or 41 cents a share, up from $67 million, or 15 cents a share a year ago.

Revenue rose 33% to $3.29 billion.

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Netflix said it took a $39 million non-cash charge in fourth quarter for unreleased content it decided not to move forward with. “Despite this unexpected expense, we slightly exceeded our contribution profit and operating income forecast due to our stronger than expected member growth and the timing of international content spend,” the company said in a letter to shareholders.

The company added 8.33 million subscriber worldwide, for a total of 117.58 million In the U.S., it added 1.98 million subscribers for a total of 54.75. The numbers were higher than the company forecast last quarter.

In its forecast, Netflix said it expects to add another 6.35 million subscribers worldwide in the first quarter, including 1.45 million in the U.S., for a total of 56.2 million.

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“We believe our big investments in content are paying off. In 2017, average streaming hours per membership grew by 9% year-over-year,” the company said. “With greater than expected member growth (resulting in more revenue), we now plan to spend $7.5-$8.0 billion on content on a P&L basis in 2018.”

Netflix also said it planned to increase marketing spending to $2 billion from $1.3 billion. “Our testing results indicate this is wise. We want great content, and we want the budget to make the hits we have really big, to drive our membership growth,” the company said. “We’ll grow our technology & development investment to roughly $1.3 billion in 2018.”

In the letter, Netflix notes that a there is growing completion as more viewers transition from linear TV to streaming. In addition to tech companies including Amazon, Apple, Facebook and YouTube, it notes Disney and other traditional companies are getting into streaming.

“The market for entertainment time is vast and can support many successful services. In addition, entertainment services are often complementary given their unique content offerings. We believe this is largely why both we and Hulu have been able to succeed and grow,” Netflix said.