Here’s Why Netflix’s Share Price Just Hit a New All-Time High
Investors expecting a strong fourth-quarter earnings report from Netflix got even more than they bargained for on Wednesday.
Netflix’s share price climbed well past its all-time high in after-hours trading after the company reported its biggest quarterly subscriber gains ever. The company’s stock shot up more than 8% after markets closed, hitting a record high above $145 per share. That’s roughly $10 per share more than the previous record high price reached by Netflix on Tuesday afternoon, when the market seemed to anticipate a stellar quarterly report—even as some remain concerned that the streaming giant’s volatile stock could be overvalued.
The popular streaming service said it added more than 7 million streaming subscribers in the fourth quarter of 2016. That’s a record for the company, which had forecasted adding roughly 5.2 million subscribers. Most of that growth came overseas, as has been the case for some time, with Netflix adding a total of 5.1 million international subscribers. But, Netflix also managed to stave off some concerns about plateauing subscriber growth in its domestic business by adding more domestic subscribers in the most recent quarter (1.93 million) than it did in the same period a year earlier (1.56 million).
For the full year, Netflix added 19 million subscribers overall—versus 17.4 million net additions in 2015—bringing the company’s total membership to nearly 94 million worldwide. The company also beat fourth-quarter revenue estimates, pulling in $2.48 billion in the quarter, while its $8.3 billion in annual streaming revenue represented a 35% bump year-over-year.
More than three-quarters of Netflix’s subscriber growth in 2016 came overseas (14.3 million international subscribers added). Despite the fourth quarter’s surprisingly strong domestic subscriber growth, the common concern is that the company is nearing a natural saturation point in the U.S. market, which is why Netflix needs to continue adding more and more international subscribers. Of course, Netflix knows this, and that’s why the company has so aggressively rolled out its service worldwide, especially as it faces growing challenges from rivals like Amazon.
On the company’s post-earnings conference call, CEO Reed Hastings commented on Netflix’s global expansion, saying “the big picture is remarkably steady” and that Latin America and Europe have seen steady subscriber growth. Hastings added that Netflix is “just getting started” in Asia, where the company is trying to tap into India’s growing population of Internet users even as it has all but given up on entering the potentially lucrative Chinese market.
Netflix knows it needs strong content to market its services globally, which is why the company has committed to spending roughly $6 billion to produce more than 1,000 hours of original content in 2017 (up from 600 hours last year). On the conference call, Netflix pointed out some of the recent original series that performed well, which executives said drove subscriber growth in the fourth quarter, including the debut season of Marvel’s Luke Cage and the second season of Narcos, the show about Colombian cocaine kingpin Pablo Escobar that Netflix launched to target viewers in Latin America.
Also on the conference call, Netflix chief content officer Ted Sarandos gave a shout-out to The Crown, the company’s popular historical drama about the British royal family that just won two Golden Globes, including one for best drama. Sarandos said the show, which is filming its second season, was very popular in the U.K., but it also did well across the U.S., Europe, and Asia.
Hastings added that Netflix’s reboot of the mother-daughter series Gilmore Girls did well in the U.S. (where the show originally aired for seven seasons on broadcast television), but he said the show was also “incredibly internationally popular,” particularly in Europe. “It’s a cumulative effect,” Hastings said on the call when discussing Netflix’s wide-ranging roster of original content. “Very few people will join Netflix just because of a single title.”
Netflix is expecting another strong showing in the current quarter, though its current estimates would represent a drop-off from the fourth quarter. The company is forecasting 5.2 million added subscribers in the first quarter of 2017 (the same amount the company forecasted for the most recent quarter), with 3.7 million of those subscribers expected to come overseas.