Netflix reports strongest ever quarter for sign-ups

Netflix added 24 million new users in 2017 and reported its highest ever quarter for new sign ups in Q4, capping a strong year of growth for the web streaming giant.

Announcing its fourth quarter results, Netflix said that it topped its forecast to make US$245 million in operating income while global streaming revenue grew by 35% thanks to price increases and subscriber growth.

With big investments in series like Stranger Things and films like Bright paying off, Netflix said it now plans to spend up to US$8.0 million on content in 2018.

It also announced plans to up its marketing spend from US$1.3 billion to approximately US$2 billion in 2018, and to grow its technology and development investment to some US$1.3 billion.

“We had a beautiful Q4, completing a great year as internet TV expands globally,” said Netflix in its quarterly shareholders letter.

“In 2017, we grew streaming revenue 36% to over US$11 billion, added 24 million new memberships (compared to 19 million in 2016), achieved for the first time a full-year positive international contribution profit, and more than doubled global operating income.”

Netflix added 8.3 million members in the fourth quarter – 2.0 million in the US and 5.3 million internationally. This beat its forecast of 6.3 million new users and exceeded last year’s record of 7.05 million net additions. For the full year it added 24 million new memberships, compared to 19 million in 2016.

Fourth quarter streaming revenue came to US$3.18 billion, up 35.3% year-on-year. Net income was US$186 million, up from US$67 million a year earlier. However free cash flow came to negative US$524 million.

Netflix said that full year cash flow came to negative US$2.0 billion in 2017 and will grow to between negative US$3 billion and US$4 billion in 2018, largely due to its original content spend, for which it will continue to raise capital.

“We believe our big investments in content are paying off,” said Netflix in its shareholder letter. “In 2017, average streaming hours per membership grew by 9% year-over-year. With greater than expected member growth, resulting in more revenue, we now plan to spend US$7.5-US$8.0 billion on content on a P&L basis in 2018.”

In Q4 the company said it took a US$39 million non-cash charge for “unreleased content we’ve decided not to move forward with”.

Speaking on the company’s earnings call, chief financial officer David Wells said the “unusual” expense was related to “the societal reset around sexual harassment,” and noted that the company hadn’t had a content-related write-down of this magnitude before.

Though not mentioned by name, various reports have linked the write-down to Netflix’s decision to sever ties with actor Kevin Spacey after allegations of sexual misconduct were made against him.

Netflix said last year that it would not include Spacey in any further episodes of political drama House of Cards, and that it would not be moving forward with the release of the film Gore, a Spacey-starring biopic of Gore Vidal that was in postproduction.

Looking forward, Netflix said it expects to add 6.35 million subscribers globally in the current quarter, compared to 5.0 million in the first quarter of 2017.