Netflix has announced the results of what it describes as a “beautiful” fourth quarter of 2017. In 2017, the company grew streaming revenue 36% to over $11 billion, adding 24 million new memberships (compared to 19 million in 2016), achieving its first full-year positive international contribution profit and more than doubling its global operating income.
Average paid streaming memberships rose 25% year-on-year in the fourth quarter of 2017. Combined with a 9% increase in ASP, global streaming revenue growth amounted to 35%. Operating income of $245 million (7.5% margin) versus $154 million prior year (6.2% margin) was slightly above the company’s $238 million forecast. Operating margin for the year was 7.2%, on target with the company’s goal at the beginning of this year.
In the fourth quarter, the company registered global net adds of 8.3 million, the highest quarter in its history up 18% versus 2016’s record 7.05 million net adds. This exceeded the company’s 6.3 million forecast, due primarily to stronger-than-expected acquisition, fuelled by its original content slate and the ongoing global adoption of internet entertainment.
In the US, memberships rose by 2 million versus the company’s forecast of 1.25 million, bringing total 2017 net adds to 5.3 million. ASP rose 5% year-on-year. Domestic contribution profit increased 5% year-on-year, although contribution margin of 34.4% declined both on a year-on-year and sequential basis due to marketing spend.
Internationally, the company added 6.36 million memberships, compared with guidance of 5.05 million, a new record for quarterly net adds for this segment. Excluding an F/X impact of +$43 million, international revenue and ASP grew 59% and 12% year-on-year, respectively. The increase in ASP reflects price adjustments in a wide variety of company markets over the course of 2017. With contribution profit of $227 million in 2017, a 4.5% contribution margin, the international segment delivered its first full year of positive contribution profit in the company’s history.
Netflix also took a $39 million non-cash charge in the fourth quarter for unreleased content it has decided not to move forward with. This charge was recognised in content expense in cost of revenues. Despite this unexpected expense, the company slightly exceeded its contribution profit and operating income forecast due to its stronger-than-expected member growth and the timing of international content spend.
For the first quarter of 2018, the company projects global net adds of 6.35 million versus 5 million in the first quarter of 2017, with 1.45 million in the US and 4.90 million internationally. The company is targeting a 2018 operating margin target of 10%, up about 300 basis points year-on-year, as in the prior year.
Netflix says it believes its big investments in content are paying off. In 2017, average streaming hours per membership grew by 9% year-on-year. With greater-than-expected member growth, resulting in more revenue, the company now plans to spend $7.5 to $8 billion on content on a P&L basis in 2018.
