Published: Sun, January 20, 2019
Entertaiment | By Simon Arnold

Netflix shares fall as weak forecast dampens investor optimism

Netflix shares fall as weak forecast dampens investor optimism

In the first nine months of 2018 alone, Netflix spent $8.5 billion in cash on streaming content, an investment that will pay off in the long run as long as the company continues to grow its global subscriber base.

The company earlier this week raised prices for USA subscribers from $1 to $2 per month depending on high-definition level and will be phased into all customers this year.

Q4 total paid subscriber growth (paid net additions): 8.8 million, versus Wall Street estimates 7.6 million and Netflix forecast 7.6 million. In Q4 the company added 8.8 million members (1.5m in the USA and 7.3m internationally), a jump from the projected 7.6 million. The company said it generated $4.19 billion in revenue, which was just shy of Wall Street expectations for $4.21 billion. The company's stock rose on the news, and analysts noted that the subscription cost is still lower than that of Hulu.

This marks the fourth time that Netflix has raised its USA prices; the last hike came in late 2017.

Then, Netflix upped the ante, suggesting that it now accounts for 10% of all TV screen time in the United States.

Netflix expects earnings per share of 56 cents on revenue of $4.49 billion, compared with Wall Street consensus estimates of 82 cents and $4.61 billion.

"What's important is for part of your Netflix subscription, you are in the zeitgeist", he said.

Previously, Netflix had continued to offer a basic, $8-a-month streaming plan while raising rates on more comprehensive plans with better video quality and options to watch simultaneously on different devices. The losses will start to shrink thereafter, the company said.

Netflix's report showed "excellent growth" trends, but this was mostly inline with expectations, Hargreaves said.

Netflix said its spending is likely to increase.

The blitz of original content comes as Disney has stopped supplying new movies to Netflix in order to stock its own streaming service planned for later this year. A Streaming Observer survey found 24 percent of respondents "might cancel" Netflix and 3 percent will "definitely cancel" in light of the price hike. Netflix also raised prices in Canada, Japan and Argentina in late 2018.

The stock traded at $346.76 per share Friday morning.

This marks the fourth price increase that Netflix has rolled out in the US.

Netflix's own current content hits include the Bird Box, starring Sandra Bullock, which the company estimates will be seen in over 80m member households in its first four weeks; You (40m households in the first four weeks); and Sex Education (also 40m households in the first four weeks). The company faces an increasingly crowded field in streaming services, with new offerings coming from Walt Disney Co. and AT&T Inc.'s WarnerMedia later this year.

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