Netflix Adds 8.8 Million Subscribers as Its Stock Falls over Spending Fears

Netflix NFLX added 8.8 million paid subscribers in the last quarter, up 34% compared with the year-earlier period, as the streaming media company launched hits including the movies Bird Box and Roma and shows You, The Haunting of Hill House and Sex Education.

The company’s fourth-quarter earnings were broadly in line with analyst estimates and came after the streaming media giant announced a subscription price hike.

However, its stock dropped 2.8% immediately after the results were announced on fears that its spending on content and willingness to take on new debt were not justified by the latest figures.

The Scott’s Valley-based company reported revenues of $4.1bn while boosting its global subscriber base by 8.8 million to 139 million. Of the new subscribers, 1.53 million were in the US.

The company said Bird Box, starring Sandra Bullock, has been viewed by 80 million subscribers in four weeks since it was released over the holidays.

“Our multi-year plan is to keep significantly growing our content while increasing our revenue faster to expand our operating margins,” the company said in a letter to investors.

The quarter capped an expensive year for Netflix, as the company took on new debt and increased spending on content and original programming to stave off threats from rivals including Amazon, Disney, HBO and Hulu.

While the service’s growth has slowed in the US it is experiencing strong growth in emerging international markets like India and Mexico. Shares have been on a tear since the holidays, rising more than 30%.

However, the decision to hike subscription prices has caused market analysts to debate how fast and how far it can use subscription pricing to offset the billions it is pouring into content acquisition.

In particular, analyst warned that the subscription rise could hurt subscriber growth, particularly among customers from median and lower-income households – groups that are not fully penetrated.

“The latest price increase may slow domestic subscriber growth dramatically this year,” warned Wedbush Securities in a note to investors.

“We do not expect significant churn given the utility provided by the service to existing subscribers, but attracting new subscribers will likely be more challenging because of the higher prices.”

According to data from Earnin, a service that targets lower-income consumers by providing cash advances on their paychecks, Netflix’s growth among low-income Americans flatlined in 2018 while Hulu and YouTube paid streaming services continued to add new users.

But other media analysts suggested that Netflix is unlikely to hit a ceiling, given the costs of a cable TV subscription.

“There’s no ‘ceiling’ for Netflix in terms of how much someone will spend,” BTIG media analyst Rich Greenfield told Yahoo Finance.

“When you look at the price of a cable subscription that is $80, $90, $100 a month now, spending $13 for Netflix is still an incredible price value, especially when you look at how much content has come onto Netflix over the last couple of years… And I don’t think they’re ever going to do ads.”

Still, as competition for subscribers heats up, Netflix – which has built its phenomenal subscriber base on the back of $8bn in debt – could find itself vulnerable to rivals that have other revenue streams to fall back on, including Apple and Amazon, which each have pre-existing relationships with consumers.

With new entrants in pay-streaming anticipated from Disney, AT&T’s WarnerMedia and Comcast’s NBCUniversal, Netflix has made it clear that it does not consider itself in a price war for subscribers, but in a spending war against competitors.

On Thursday the company said “our growth is based on how good our experience is, compared to all the other screen-time experiences from which consumers choose. Our focus is not Disney, or Amazon or others, but on how we can improve our experience for our members.”

According to Mike Bloxham, senior vice-president of global media and entertainment at consulting firm Magid, Netflix’s price hike is actually more likely to cause subscriber reductions at rival services.

“Due to [Netflix’s] strong market position, although this won’t necessarily be a popular move, the number of subscribers that will actually churn out of the service as a result will be minimal,” Bloxham predicted.

And because of its superiority of content – a Piper Jaffray report found that 71% of the subscribers it surveyed felt contentthe service has improved. The firm’s analysts concluded Netflix is in a solid position to raise streaming prices on a regular basis.