Netflix's (NFLX) Q4 Earnings Gain On Solid Content Portfolio

Netflix (NASDAQ:NFLX) reported scintillating fourth-quarter 2017 earnings driven by expanding original content portfolio and surging international subscriber base.

The company added 8.33 million subscribers (highest in its history), of which 6.36 million came from the International streaming business in the quarter. The figure is impressive, considering that Netflix hiked prices in the Europe and the United States by almost 10%.

Notably, average streaming hours per membership grew by 9% year over year in 2017.

Content is King

Netflix’s strong programming slate that included returning seasons of popular shows like Stranger Things, Black Mirror and The Crown as well as new releases like Godless, Marvel’s The Punisher and Mindhunter attracted subscribers to the platform.

Despite scathing reviews from critics, Netflix’s film Bright became one of the most viewed original titles in the company’s history. The company has already started working on a sequel.

Moreover, a diversified international original content portfolio that includes German series, Dark, Mexican flavored Club de Cuervos (season 3) and The Day I Met El Chapo, Italian-language thriller series Suburra, and UK-based Jack Whitehall: Travels with My Father attracted international subscribers.

According to Netflix, as quoted by Bloomberg, “Dark that features time travel and a search for children gone missing in a sleepy German village” is one of the company’s most-watched non-English shows ever.

Moreover, per a TechCrunch report, Netflix’s original Mudbound has received four Oscar nominations. Further, Icarus and Strong Island have also been nominated in the best documentary feature category.

Netflix’s growing popularity can also be estimated from the latest report by SensorTower. The company topped the list of overall non-game apps by revenues across Apple’s App Store and Google (NASDAQ:GOOGL) Play Store in 2017.

International Subscriber Base Booming

Paid international subscriber base soared 40.4% from the year-ago quarter to 57.83 million. Total subscribers increased 41.6% year over year to 62.83 million.

From the above data, it can be inferred that almost 90% of the new international subscribers who joined Netflix (first month free) in the past year became paid subscribers eventually. The company added 16.64 million paid subscribers in the international streaming business during this period.

Based on the strong content portfolio, Netflix expects net subscriber addition of 6.35 million in first-quarter 2018 compared with 5 million in the year-ago quarter. Of this, the international segment is expected to gain 4.90 million subscribers.

Expanding Budget Burning Cash

Netflix plans to release 30 international original series in 2018, including programs from France, Poland, India, Korea and Japan. The company intends to produce/acquire 80 films throughout the year.

Netflix has set a budget of $7.5-$8 billion for production/acquisition of original content in 2018. Management expects this figure to increase in 2019 and 2020.

Moreover, marketing spending is projected to increase slightly faster than revenues in 2018.

However, cash burning is a major headwind for Netflix, which can upset future spending plans. The company projects free cash outflow in the range of $3-$4 billion for 2018 compared with $2 billion in 2017.

Zacks Rank & Key Picks

Netflix has Zacks Rank #3 (Hold).

Echostar (NASDAQ:SATS) , Micron Technology (NASDAQ:MU) and The Trade Desk (NASDAQ:TTD) are stocks worth considering in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Echostar, Micron and The Trade Desk is currently pegged at 18.50%, 10% and 25%, respectively.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>