Netflix's video streaming service added more subscribers than ever during the crucial holiday season, but the company signaled its growth is slowing in the US as it begins to roll out double-digit price increases in its biggest market. According to Variety, the streaming service company has also told its investors that instead of authentic rival like HBO, it looks at competing with (and lose to) ‘Fortnite’ more than HBO, citing the game’s user base and ability to engage users.
The slightly disappointing forecast issued Thursday for the opening three months of the new year overshadowed a solid earnings report covering the final quarter of last year — a key period for Netflix because subscriptions to its service are a popular holiday gift.
Management predicted that the company will gain another 8.9 million subscribers from January to March, but only 1.6 million are expected in the US.
That downturn in the US raised alarms because Netflix is starting to raise its prices in the country by 13 to 18 percent this quarter, a move that the company is making to help pay for its rising programming costs as it competes for exclusive series and films against Amazon, Hulu, AT&T and Apple.
By charging more, Netflix can continue "a virtuous cycle where you've got the more investment you're putting in, the more people are finding content that they love and the more they have value in the service," said Ted Sarandos, the company's chief content officer, during a Thursday webcast.
However, in a recent report by Variety, Netflix said its not really focused on these rivals. “We compete with (and lose to) ‘Fortnite’ more than HBO,” the magazine quoted Netflix telling investors in its quarterly letter for Q4.
But the higher US prices also threaten to cause some existing subscribers to cancel the service and discourage potential new customers from joining. That phenomenon could undercut the subscriber growth that propels Netflix's stock price more than any other factor.
Netflix's shares fell nearly 4 percent to $340 in Thursday's extended trading after the earnings report and forecast came out. Even so, the stock remains above its levels before the company announced the US price increase earlier this week, a sign that more investors believe management is doing the right thing for the company's long-term financial health as it continues to burn more cash than it is bringing in.
Netflix had a negative cash flow of $1.3 billion in fourth quarter, bringing its total for all of 2018 to a negative $3 billion.
The Los Gatos, California, company expects burn through another $3 billion this year as it continues to spend heavily for the rights to popular programming, such as the film ‘Bird Box’, which the company said has been watched by 80 million households since its 21 December debut on the streaming service.
Even as its burns through cash, Netflix remains profitable under accounting rules. It earned $133.9 million, or 30 cents per share, for the fourth quarter, a 28 percent decrease from $185.5 million, or 41 cents per share, at the same time in the prior year. The earnings per share exceeded the average estimate of 24 cents among analysts surveyed by Zacks Investment Research.
Revenue for the past quarter climbed 27 percent from the previous year to $4.2 billion, in line with analysts' estimates.
(With inputs from AP and Variety.)