Netflix Beats Q4 Subscriber Forecasts With Largest Quarterly Gain in Its History

Netflix added 7.05 million new subscribers in the fourth quarter of 2016, handily beating expectations for the period and setting a quarterly record, driving shares to new all-time highs in after-hours trading Wednesday.

For the last three months of 2016, historically a strong quarter for Netflix, the company added 1.93 million U.S. streaming subscribers, and 5.12 million international subs. Analysts had forecast net U.S. streaming subscriber adds of 1.44 million and a gain of 3.74 million international subs.

In after-hours trading, Netflix shares popped more than 8%, after the stock has hit record highs in recent days.

Overall, Netflix posted revenue of $2.48 billion for Q4 2016, in line with Wall Street analyst expectations of $2.47 billion, with net income of $66.7 million (15 cents per share) beating the Street’s estimates of $58 million (EPS of 13 cents).

Netflix — which this week is marking the 10-year anniversary of its U.S. streaming video debut — said global streaming revenue grew 41% year over year to $2.4 billion, while contribution profit rose 74% year over year to $470 million (with a 20% margin).

Netflix now counts 93.8 million streaming subscribers across the globe as of the end of 2016, comprising 49.4 million in the States and 44.4 million overseas.

In its quarterly letter to shareholders, Netflix reiterated that in 2017 it plans to spend over $6 billion on content (on a P&L basis), compared with $5 billion in 2016. The company said it expects a “greater membership impact” from its content slate in the second half of 2017, with new seasons of popular returning shows like “Orange Is the New Black,” “Unbreakable Kimmy Schmidt” and “Master of None.”

For the first quarter of 2017, Netflix projects 5.2 million net adds (1.5 million in the U.S. and 3.7 million internationally). In the U.S., that would represent a decline from 2.23 million net adds in Q1 2016, which the company said “reflects a difficult comparison in the year-ago quarter where we exceeded our net adds forecast by 27%.”

Regarding speculation that the FCC’s net neutrality laws will be weakened or dismantled under incoming President Donald Trump, Netflix said any change — if it happens — “is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable.”

That said, Netflix added that “strong net neutrality is important to support innovation and smaller firms. No one wants ISPs to decide what new and potentially disruptive services can operate over their networks, or to favor one service over another.” The company added, “We hope the new U.S. administration and Congress will recognize that keeping the network neutral drives job growth and innovation.”

Netflix touted its original programming, calling out “The Crown” — which won the 2017 Golden Globe for best TV drama series and star Claire Foy won for best actress in a TV drama series — “Marvel’s Luke Cage,” and season three of “Black Mirror” as continuing to “generate excitement and excellent viewing all across the world.” The company said “Gilmore Girls: A Year in the Life” debuted in the top 10 in every territory, and Guillermo Del Toro’s “Trollhunters” from DreamWorks Animation, which launched in December, is tracking to be its most-watched kids original ever. (Netflix notoriously does not disclose specific viewing metrics.)

Internationally, Netflix said it is continuing to invest in local programming. “We are focusing on local content that travels pan-regionally or across multiple territories, such as Japanese anime and Turkish dramas,” the company said in the letter, citing its recent long-term pact with Red Chillies Entertainment, the film production company of Bollywood superstar Shah Rukh Khan.

On the competitive front, Netflix cited numerous rivals — noting that Amazon last month launched Prime Video in 200 countries — “which presents both challenges and opportunities for Netflix as we strive to earn screen time.” It said the BBC has become the first major TV network that plans to release new seasons with a “binge-first” strategy (with all episodes available at once a la Netflix) and added: “We presume HBO is not far behind the BBC.”

Pictured above: Claire Foy in Netflix original series “The Crown”

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