Netflix reels in customers after price hike, sending stock to new high

Mike Snider | USA TODAY

Show Caption Hide Caption Obama and Letterman reunite on new Netflix show The former president talks “Dad moves.”

Netflix for a few dollars more? No problem.

The Internet video provider again blasted past its own growth expectations, adding more than 8.3 million new subscribers from October through December 2017.

In the period, during which Netflix instituted a price hike, the Los Gatos, Calif.-based company had expected to add 6.3 million new subscribers — 1.25 million in the U.S. and 5.05 million internationally. Wall Street had expected 6.32 million new additions.

Netflix now has nearly 117.6 million total global members (110.6 million are paying subscribers, the remainder are new users on trial memberships). And, the new additions could perhaps be a sign that Netflix has become such a desirable service that its customers will roll with future price hikes, too.

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New customers came to Netflix because of the shows they can only watch on the service and because Internet streaming is rapidly catching on outside the U.S., said Netflix CEO Reed Hastings.

"The real driver is to make the big titles bigger," he said in a video interview posted Monday after the company released its financials. "So many people are talking about Bright or Stranger Things (season) 2 or The Crown that that is what pulls in people who haven’t yet joined. All their friends are talking about the shows, that is the dominant accelerator."

Netflix also met expectations for its fourth-quarter earnings performance with adjusted earnings of 41 cents and net income of $186 million. Wall Street had expected earnings of 41 cents with net income of $185 million, according to analysts polled by S&P Global Market Intelligence. Netflix reported net income of $67 million in the same period a year ago. Revenue of $3.29 billion surpassed expectations of $3.28 billion.

Wall Street analysts had considered Netflix's forecast as conservative even though during the quarter the streaming provider raised its monthly prices for new and current members. The price hike, the first in two years, increased the cost by $1 of the service's most popular plan — two screens watching simultaneously — to $10.99 monthly. Netflix's premium plan, which lets you run Netflix on four screens and get 4K video, rose $2 to $13.99. The $7.99 monthly price of the basic one-screen, standard definition-video plan remained the same.

But Netflix pulled off its largest influx of members yet, an 18% increase over its previous largest three-month growth period, the fourth quarter of 2016, when it added 7.05 million users.

“They blew the subscriber numbers out of the park," said Tuna Amobi, director and senior equity analyst at CFRA Research, who maintains a Buy rating on Netflix shares. "It seems like the price hike was well-received, clearly from these subscriber numbers."

Stock surge

Netflix (NFLX) shares hit another new historical high Tuesday of $257.71 before dipping to $249.30 midday, up 9% for the day. Netflix's market cap has soared past $100 billion and shares have risen 32% over the last six months.

Netflix doesn't expect the price hike to hamper growth during the current January-March quarter and itforecast additions during those three months to hit 6.35 million, up from last year's period, which generated 4.95 million new additions.

Despite the price hike of about 10%, Netflix saw very little affect on its new sign-ups, Hastings says. Overall, viewers are streaming 9% more content than a year ago, he says.

"You can take away from that that our content is just making us to be really a primary focus for consumers’ entertainment," Hastings said. "So our responsibility is then to take that increased revenue and turn that into even better content, that is the fundamental deal. Consumers are tolerant as long as something's improving."



Among notable new and upcoming Netflix releases: the sci-fi series Altered Carbon (out next month) and My Next Guest Needs No Introduction with David Letterman had its first episode land Jan. 12 with President Obama as the initial guest; guests in upcoming months include George Clooney, Malala Yousafzai, Jay Z, Tina Fey, and Howard Stern.

During the October-December period, Netflix also debuted the Will Smith sci-fi film Bright, as well as crime series Mindhunter, which has been renewed, and made available the second seasons of Stranger Things and The Crown, which earned a Best Actress in a TV drama award at the Screen Actors Guild Awards Sunday.

With higher than expected user growth, Netflix now plans to spend between $7.5 billion and $8 billion on content this year, Hastings says. "It will definitely be higher in 2019 and 2020," he said.

"The momentum is clearly there" for Netflix, Amobi said. "You can make a case actually the product is still relatively underpriced, compared to some of the competition."

Speaking of competition, Hastings noted the growing content aspirations of Amazon and Apple, as well as Disney’s plan to launch its own streaming service next year. The plan at Netflix is to watch and, perhaps, learn from their efforts, he says.

"Our thing is working and what we have to do is not get distracted," Hastings said. "We have got a path ahead. Everybody else in streaming has to find one. ... I think Disney, with its strength of brand and unique content will have some real success. ... I know I’ll be a subscriber. Total streaming will grow faster because of the competition."

Competition from Disney may loom “on the horizon," said Daniel Ives, head of technology research at market research firm GBH Insights, in a note to investors Monday. However, he said, "Netflix showed with these results … that the Netflix machine is showing no signs of slowing down."

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Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.