Netflix signs up more subscribers than expected on ‘Stranger Things’ fantasy series

“Stranger Things” is the gift that keeps on giving for Netflix.

The world’s largest online TV network signed up 8.33 million customers in the fourth quarter, surpassing analysts’ estimates of 6.34 million, thanks in large part to the popularity of the fantasy series. Netflix Inc. now has 117.6 million customers worldwide, wrapping up its biggest year ever for new subscribers.

While rival media companies merge, fire staff and fret about the future of their businesses, Netflix keeps chugging along, adding customers at home, in Europe and Latin America. Sales grew by a third to $3.29 billion, the company said Monday after markets closed, while earnings almost tripled from a year prior.

Netflix will plough all of that and more into new TV shows and movies. The company has said it will spend as much as $8 billion on programming this year, and disclosed Monday it will shell out another $2 billion for marketing. The company is dramatically increasing its non-English programming, with plans to release 30 local language productions in 2018.

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Shares of the Los Gatos, California-based company rose as much as 9.8 per cent to $249.95 in extended trading, a new high. The stock has gained 19 per cent this year and its market value, at around $100 billion, was more than four times that of CBS Corp., owner of the most watched US TV network.

Netflix’s success has inspired fellow tech giants Facebook Inc., Apple Inc. and Amazon.com Inc. to try their hand at original programming. It has spurred TV companies like Walt Disney Co. to invest more in online services and acquire competitors. Yet Netflix has a significant head start on all those players, and argued in a letter to shareholders Monday that they would complement the company.

International Gains

International territories accounted for the bulk of the subscriber growth in the most recent quarter and hold the key to Netflix’s future, with additions totalling 6.36 million to beat the 5.05 million average of analysts’ estimates. Netflix said Rodolphe Belmer, the chief executive officer of Paris-based Eutelsat Communications SA, will join its board.

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The US business, where growth had been slowing, also showed vigour. The company signed up 1.98 million new customers at home, up from a year ago and beating analysts’ projections of 1.29 million, according to Bloomberg data.

Netflix churns out a wide range of new shows every month to entice new viewers and keep old ones. The company released new seasons of two of its biggest hits, “Stranger Things” and “The Crown,” in the latest quarter. It also released the first season of David Fincher’s “Mindhunter,” a $90 million movie starring Will Smith and its first original German series, “Dark.”

“In only five years since launching our first original series, Netflix had three of the top five most searched TV shows globally for the second year in a row,” the company said in its letter to shareholders.

Netflix predicted it will add 6.35 million customers worldwide in the first quarter of the year, more than the average 5.18 million projection of analysts. The company said that includes 1.45 million new subscribers in the US

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Quarterly Profit

Splurging on new shows comes at a cost. Netflix will burn through as much as $4 billion in cash this year and said it will borrow money again. Critical analysts continue to wonder when spending will level off. The company has stayed around break even for most of its existence, but continues to burn through cash because of lavish spending on programming, financed by borrowing.

Long-term debt stood at $6.5 billion at year-end, while long-term content liabilities totalled $3.33 billion.

The ability to raise prices could boost Netflix’s profitability in the long-term. The company’s October price increase – $1 a month for the most popular plan – had little impact, if any, on growth in the quarter. While a previous increase slowed subscriber gains, this one passed with less scrutiny or media coverage. The most popular plan costs $11.

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Net income for the quarter increased to $186 million, or 41 cents a share, Netflix said, in line with analysts’ estimates. Results included a $39 million charge for unreleased content. During the quarter, the company fired Kevin Spacey from “House of Cards” and cancelled a planned movie with the actor after he was accused of sexual misconduct. The company also recorded costs associated with currency fluctuations.

While “House of Cards” put Netflix on the map as a creative force, it is now but a tiny part of the company’s portfolio. Content chief Ted Sarandos is increasingly trying to make deals directly with top talent so that he can better control where and how its shows are presented.

The company just signed a new deal with Shawn Levy, one of the producers of “Stranger Things,” one of Netflix’s first in-house productions.