Netflix Shares Surge After Hours amid Record Growth in Subscriptions
Netlix Inc. (NFLX) has proved it can raise prices and still attract a record number of new users. The Los Gatos, California-based streaming service added 7.41 million customers in the first quarter, smashing analysts’ forecasts by about 1.7 million.
In addition to adding a record number of subscribers, Netflix posted per-share earnings of 64 cents on revenue of $3.7 billion. Analysts in a consensus estimate called for earnings of 64 cents per share on sales of $3.69 billion.
International streaming dominated subscription growth with a net gain of 5.46 million new users. Europe and Latin America were largely responsible for the better than expected growth. U.S. additions totaled 1.96 million.
Netflix succeeded in adding new subscribers even as it hiked the price of its streaming service, a sign the company was delivering desirable content. In addition tot he 700 titles planned for release this year, the company is investing billions into original content. Moving to in-house production will allow Netflix to save money by avoiding hefty markups charged by rival studios.
After falling 1.2% on Monday, share prices spiked 5.2% in after-hours trading. At $323.70 per share, the company should surpass $140 billion in market cap at the start of trading on Tuesday. That’s a 600% increase since 2014.
Share prices are recovering after a difficult stretch for so-called FAANG stocks, an abbreviation that represents Facebook, Apple, Amazon, Netflix and Google-parent Alphabet. FAANG investments lost more than $320 billion over a three-week stretch ending Apr. 2.
At the close:
Dominance of Over-the-Top Content
Netfix has established a dominant position in the market for over-the-top content, or OTT, which generally refers to internet-based streaming services. Cord cutters in the U.S. market alone topped 22 million between 2016 and 2017, bringing the total number of consumers without pay TV to about 57 million.
High-speed internet is not only disrupting traditional media, it is destroying it. This extends far beyond the entertainment segment to also include broadcast news and other mainstream media outlets.
OTT content could be worth $62 billion by 2020, putting companies like Netflix at the top of the heap for investors looking for promising plays during the tail end of the bull market.
The success of Netflix has spawned several paid and free alternatives, including emerging juggernauts like Amazon Prime Video, Hulu and Sling TV. Traditional media companies like HBO have also adopted the subscription streaming model.
As cord-cutting continues, price elasticity of demand could grow for streaming services. In other words, companies can charge more for their service without fear of lost revenue. That was certainly the case with Netflix during the past quarter.
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