Subscription video on demand provider Netflix (NASDAQ: NFLX) added a record 13 million new subscribers in 2014, bringing its total subs worldwide to 57.4 million. It was the first in a line of good news for investors, as CEO Reed Hastings said in a letter that the provider's subscription rate was in line with its forecast for the fourth quarter.
What's more, Netflix's international expansion is going so well that Hastings said the company expects to complete its initiative "over the next two years, while staying profitable, which is earlier than we expected."
It also piled on revenue in the fourth quarter, to the tune of $1.3 billion. Netflix brought in net income of $83 million in the fourth quarter, with earnings per share of $1.35.
Netflix recorded 4.33 million total net subscriber additions for the fourth quarter alone, with its international subscriptions leading the way at 2.43 million subs.
There were a couple of flat notes in the fourth-quarter earnings report. Net additions in the U.S. are still flattening out, with 1.9 million new additions for the fourth quarter compared to 2.3 million a year ago. Hastings admitted in the shareholder letter than the $1-per-month price rise was not the main culprit behind the lower numbers. "…with additional research, we now think that the decline in y/y net adds would have largely taken place independent of the price change," he said.
"We think, instead, the reduction in y/y net additions is a natural progression in our large US market as we grow. We have built in flexibility to our business model in terms of how quickly we grow content and marketing spend, so we intend to keep US contribution margins growing even with lower membership growth."
For the first quarter of 2015, Netflix is forecasting revenues of $1.39 billion, with a much lower net income of $37 million leading to an earnings per share of just 60 cents. The reason for the lowered forecast is twofold. In the fourth quarter, Netflix was able to release $39 million in reserves following the resolution of prior year tax audits. But more significantly, the company plans to invest much more into its international expansion this year, and expects its full-year operating income for 2015 to be much lower than 2014.
Netflix will also raise another billion dollars of long-term debt to finance its original content efforts, something it feels is worth taking on to stay ahead of its competitors as the OTT race heats up.
"It is increasingly clear that virtually all entertainment video will be Internet video in the future. We believe there is big growth ahead in the US market for Netflix, even if we may not get there in a straight line of 6 million annual net adds," Hastings said.
- see this shareholder letter (PDF)
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