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Netflix Cautions on Foreign Subscriber Growth

18 Apr, 2016 By: Erik Gruenwedel

SVOD added 6.7 million Q1 subs; topped 81.5 million globally

Netflix April 18 issued a warning on international subscriber growth going forward — a red flag after the subscription streaming pioneer appeared to hit on all all cylinders in the first quarter (ended March 31) — adding 6.74 million subscribers, including 2.23 million domestically. It ended the period with 81.5 million subs, including nearly 47 million in the United States.

In the shareholder letter, Netflix CEO Reed Hastings and CFO David Wells said the service expects to add 2.5 million members with 500,000 domestically and 2.4 million internationally, compared with 2.4 million in the prior-year period.

“We are forecasting flat year-over-year (y/y) contribution margin in Q2, due to a large slate of content releases and associated marketing. We expect strong y/y margin growth to resume in Q3 and we remain on track to achieve our 40% domestic contribution margin target by 2020.

Globally, Netflix is applying the brakes on projected sub growth, due in part to unfavorable year-over-year comps when launching in Australia and New Zealand last year. In other words, Netflix says it will be tough to match the initial surge of consumer interest down under going forward. 

“While Australia/New Zealand is growing steadily this Q2, it is less than the launch spike last year,” Hastings and Wells wrote. 

Meanwhile, Netflix is phasing in more slowly a previously-announced $2 monthly price hike to longtime $7.99 subs over the course of the year, instead of next month as analysts had anticipated.

“We expect only modestly increased churn from un­-grandfathering, partially because these members have been with us for a reasonable period already, and because our content continues to improve,” read the letter.

The company continues to be hitting a wall launching service in China, saying it had no “material update” on its approach or timing in the Communist country.

“Whatever we do will have only a modest financial effect in the near term,” Hastings and Wells wrote.

The service reported net income of $28 million on revenue of $1.81 billion, which compared to income of $24 million and $1.4 billion in revenue during the previous-year period.

Netflix legacy by-mail disc rental service quietly ended Q1 with 4.7 million members and $72 million in contribution profit. The company continues to outspend (and outbid) the competition for exclusive third-party content. Streaming obligations shot up more than 25% to $12.3 billion, from $9.8 billion a year ago.


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