Netflix FY18 operating profit nearly doubles to $1.6 bn

MUMBAI: Internet entertainment service Netflix’s annual revenue by 35% to $16 billion in 2018, and nearly doubled operating profits to $1.6 billion. Fueling this growth was what it called its high member satisfaction, which propelled it to finish 2018 with 139 million paying memberships, up 9 million from the quarter start and up 29 million from the beginning of the year.

Average paid memberships and average selling price (ASP) rose 26% and 3% year over year, respectively. Excluding the impact of F/X, international ASP increased 6% year over year and 1% sequentially. Foreign exchange headwinds continued to move against the company in the quarter, similar to the trend seen in the third quarter.

However, as expected, Q4 operating margin dipped to 5.2% vs. 7.5% prior year due to so many titles launching in the quarter. The full year 2018 operating margin of 10% was in-line with the target. EPS of $0.30 vs. $0.41 included a $22 million non-cash unrealized gain from F/X remeasurement on our Euro-denominated debt.

“We added a record 8.8m paid memberships (1.5 million in the US and 7.3 million internationally), higher than our beginning-of-quarter expectation for 7.6 million paid net adds and up 33% year over year. For the full year, paid net adds grew 33% to 29 million vs. the 22 million we added in 2017,” the company said the letter to investors.

Netflix has forecast that its global paid net additions will increase 8.9 million in Q1 FY19 with 1.6 million in the US and 7.3 million internationally. The Q1 FY19 revenue is forecast to grow at 21%.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience. We want to ensure that Netflix is a good value for the money and that our entry price is affordable. We just increased our US prices for new members, as we did in Q4 in Canada and Argentina, and in Japan in Q3. The new pricing in the US will be phased in for existing members over Q1 and Q2, which we anticipate will lift ASP,” it stated.

Netflix said its multi-year plan is to keep significantly growing content while increasing revenue faster to expand our operating margins. “We’re targeting a 9% operating margin in Q1’19, which we expect will grow over the course of the year and our full year operating margin target for 2019 remains 13% vs. 10% in 2018,” it added.

In 2019, Netflix will be launching titles including ‘The Umbrella Academy’ (February 15th); ‘Triple Frontier’ from J.C. Chandor (March); ‘The Irishman’ from Martin Scorsese; 6 Underground from Michael Bay; and ‘The Politician’ from Ryan Murphy; as well as returning seasons of ‘The Crown’ led by a new cast including Olivia Colman, Ben Daniels, and Helena Bonham Carter; ‘13 Reasons Why’, ‘La Casa de Papel’, ‘Elite’ and, of course, Season 3 of the epic ‘Stranger Things’, coming to members all around the world on 4th July.

On the product and partnerships front, the company said that it tests many different approaches to our business in order to learn how to grow quickly.

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