Netflix Nears 100 Million Subscribers, but Q1 Gains Fall Short of Expectations

Iron Fist
Courtesy of Netflix

Company expects to spend $1 billion on marketing original content in 2017

Netflix added fewer subscribers than expected for the first three months of 2017, while the No. 1 subscription-video provider said it will surpass the 100-million mark this coming weekend.

For the first quarter, Netflix added 1.42 million U.S. subs and 3.53 million overseas. Previously the company had projected net gains of 1.5 million in the U.S. and 3.7 million internationally for period.

On the subscriber-growth miss, the company’s stock fell 3% in after-hours trading before rebounding a bit (but still trading below Monday’s closing price). Shares closed up 3% on Monday at $147.25 per share. [UPDATE: Around 5 p.m. ET, Netflix shares crossed into positive territory in after-hours trading.]

As of the end of March, Netflix had 98.75 million global streaming members. The company said it expects to top 100 million this weekend. “We remain incredibly excited about the opportunity in front of us to build a truly global and durable internet TV business,” Netflix said in its letter to shareholders.

In 2017, the company plans to spend more than $1 billion marketing its content, Netflix said in the shareholder letter. That’s more than it spent overall on marketing in 2016 ($991 million). As part of its marketing efforts this year, the company will invest more in programmatic ads, “with the aim of improving our ability to do individualized marketing at scale and to deliver the right ad to the right person at the right time,” Netflix said.

Netflix reported revenue of $2.64 billion for Q1, in line with analyst forecasts, and earnings of 40 cents per share (beating Wall Street estimates of EPS of 38 cents).

The results come after Netflix added 7.05 million new subscribers in the fourth quarter of 2016, setting a quarterly record for net subscriber adds. For the second quarter — historically a soft period for Netflix — the company projects 600,000 U.S. net adds and 2.6 million internationally.

On the originals front, Netflix highlighted several releases during the quarter: “A Series of Unfortunate Events,” based on the Lemony Snicket book series; “Santa Clarita Diet,” the zombie comedy starring Drew Barrymore and Timothy Olyphant; “Ultimate Beastmaster,” its first reality competition show in which athletes race to finish a 600-foot obstacle course; and “Marvel’s Iron Fist,” the fourth installment in the street-hero series from the Disney-owned studio.

Netflix said “Dave Chappelle: Collection 1,” comprising two original stand-up performances from the comedian (with a third, new special set to be released in 2018), was its most-viewed comedy special ever. Its spate of comedy deals of late have included pacts Chris Rock, Jerry Seinfeld, Amy Schumer, Louis C.K., Sarah Silverman and Tracy Morgan. “We have also stepped up our investment in stand-up comedy which we believe can help grow our business, like our original series,” the company said.

Netflix also called out the extension of its deal with Adam Sandler for an additional four films, noting that subscribers have streamed more than 500 million hours of Sandler’s films on the service since the release of “The Ridiculous 6” in late 2015. The company last month hired Scott Stuber, formerly co-president of production at Universal Pictures, to head its original films division.

Meanwhile, earlier this month rival Amazon snared streaming rights to the NFL’s “Thursday Night Football” games for next season. Netflix execs have routinely said they’re not interested in acquiring sports rights specifically or launching live TV-style programming more generally. The company told investors in the letter Monday that pursuing live sports “is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows.”

Pictured above: Netflix original series “Marvel’s Iron Fist,” which premiered March 17.

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  1. loco73 says:

    Currently watching “Iron Fist” and while it took a beating from the critics as well as audiences, I like the show and I appreciate what the Netflix-Marvel collaboration has achieved in the superhero genre, one that at least on the big screen has been repetitive, boring and uninspired. While I don’t watch all of Netflix’s content, due to the variety on offer, there is a lot to like.

  2. Jermaine Williams says:

    Well with 1/3 of the entire US population is a paying customer of Netflix, it’s an amazing feat.

    So, it shows the power of the internet as a conduit for many types of communication. As we also reflect on the past issues where Netflix had to enter into a dedicated internet/peering agreement with Level 3, it’s time for Netflix because Comcast customers were complaining about connectivity and speed.

    Overall, I’m surprised Netflix hasn’t asked for Level 3 to divest of excess capacity and dark fiber as a condition of Level 3’s merger with former Baby Bell, CenturyLink; complained to FCC or DoJ Anti-trust teams. These peering agreements will just continue to increase; and the cost will be passed to customers. If Netflix owned it’s fiber it’d be able to control its destiny and customers wouldn’t have to worry about increasing prices; and adding tangible assets to the business portfolio wouldn’t hurt either.

  3. Michael Talbot says:

    Stock is actually up…

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