Hastings Says Netflix has Some Catching up to do, Cites YouTube and Linear TV as Being Ahead of the Streamer in Hours Watched
Netflix has beat subscriber growth expectations once again. The company racked in a total of 7.41 million subscribers in Q1 2018, up 50% year over year and ahead of its 6.35m forecast. In the US, the company added 1.96m memberships (compared with forecast of 1.45m). Outside of the US, membership grew by 5.46m (vs. forecast of 4.90m). The streamer’s international segment now accounts for 50% of revenue and 55% of memberships. To Netflix has produced original content in 17 different countries.
The company’s investment in international production continued to increase with non-English originals like “O Mecanismo” (The Mechanism) . Loosely inspired by real events and from “Narcos” creator José Padilha, the drama is tracking to be one of the streamer’s most viewed originals in Brazil. Additionally, “La Casa de Papel,” a Spanish language heist thriller, became the most watched non-English series on Netflix ever.
In addition to subscriber growth, the streaming giant’s revenue grew 43% year over year in Q1, the fastest pace in the history of its business. The jump in revenue was due to a 25% increase in average paid streaming memberships and a 14% rise in ASP. Operating margin of 12% rose 232 bps year over year.
Netflix reported $3.7 billion in revenue for Q1, and a net profit of $290 million (67 cents per share).
“We are fraction of the hours of viewing of YouTube, we’re a fraction of the hours of viewing for linear TV. We have some great momentum and were excited about that, but we have a long way to go in terms of earning all of the viewing that we want to,” said Netflix CEO Reed Hastings during the earnings call.
For Q2 Netflix expects 6.2 million global net additions (1.2m in the US and 5.0m for the international segment) vs. 5.2 million in the year ago quarter. Q2 operating margin is expected to be 12%. The company is targeting a full year operating margin of 10%-11%. It anticipates content and marketing spend to be weighted towards the second half of 2018.
Why it matters?
With its Q1 results, Netflix continues to solidify its spot as the number one streamer in the US and the world. The streamer, which expects to spend as much as $8 billion on shows and movies this year, up from $6 billion in 2017, will continue its push into original content both inside and outside the US.
“We can bring our technology knowhow to bring a great story from anywhere in the world to the rest of the world, and using our ability to subtitle and dub and getting better and better at doing that… can make a very local show at least pan regional and at best global,” said Netflix chief content officer Ted Sarandos.
With Netflix upping its original content budget by $2 billion, the company continues to put pressure on rival streaming services Amazon and Hulu, who have also been stepping up their spend on original content. Most recently, Amazon purchased the rights to ‘Lord of the Rings’ for an estimated $250 million.