Netflix said it ended Q1 2017 with 98.78 million streaming subs worldwide, after adding 4.95 million in the period but missing original estimates.
Netflix ended Q1 with 50.85 million U.S. streaming subs, adding 1.42 million in that category. The OTT giant added 3.53 million international streaming subs in Q1, extending that total to 47.89 million. The company said it’s seeing a “small but steady migration” to Netflix’s four-stream, 4K video quality tier, but didn’t say how many subs are on its highest-end plan.
Netflix originally expected to add 1.5 million U.S. streaming subs, and 3.7 million international streaming subs in Q1 2017. Investors didn't appear to be too concerned, as Netflix shares were down 95 cents (0.65%) to $146.30 each Monday in early after-hours trading.
In its Q1 investor letter (PDF), Netflix said international net adds dropped 22%, year-on-year, “as we lapped our January 2016 launch of over 130 countries, and the accompanying early surge demand, in Q1 2016.”
Looking ahead, Netflix expects to surpass the 100 million streaming sub mark in Q2, forecasting it will add 3.2 million subs in the period (600,000 U.S. subs, and 2.6 million international subs), extending its total to 101.95 million.
On the financial end, Netflix generated $2.63 billion in revenues, up 34.7% year-on-year, and net income of $178 million (40 cents per share). It expects Q2 2017 revenues of $2.75 billion and net income of $66 million (15 cents per share).
Operating margins in Q1 was higher (9.7%) than planned for the year (about 7%) due to some content, primarily season five of House of Cards, moving from Q1 to Q2 2017. As a result, Netflix now expects operating margin at 4.4% in Q2, placing it “on track to reach our 7% target for the full year.
Among other tidbits in the letter, Netflix said it plans to spend more than $1 billion this year in marketing, noting that it will invest more in programmatic advertising to enable “individualized marketing at scale.” It also plans to do more with MVPD partners, citing its hook-up with Comcast this month for the MSO’s “Watchathon Week.”
Following tests last year, Netflix pointed out that it has rolled out a new “thumbs-up thumbs-down” feedback model that replaces its previous five-star model that stemmed from its DVD days. Usage of the new model is driving twice as many ratings and is helping Netflix to improve its personalization features.
Netflix also weighed in on Sling TV, PlayStation Vue, DirecTV Now, YouTube TV and Hulu’s coming virtual MVPD, holding that those OTT TV offerings are more directly competitive to existing MVPDs than Netflix’s SVOD offering.
While those vMVPDs “may appeal to a segment of the population that doesn’t subscribe to a pay TV bundle…we don’t think it will have much of an impact on us as Netflix is largely complementary to pay TV packages.”
Netflix also poured cold water on whether the company should look at live, ad-supported programming, including questions about Amazon’s move to stream Thursday night NFL games.
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“That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows,” Netflix said.