Netflix Inc. (NFLX) shares traded lower Friday after the online streaming entertainment service topped Wall Street forecasts with its fourth quarter earnings report, but noted that U.S. price increases wouldn't slow its cash burn rate until at least next year.
Netflix posted a better-than-expected bottom line of 30 cents a share for the three months ending in December, but overall revenues of $4.49 billion narrowly missed the consensus forecast of $4.61 billion. Still, the service added 8.8 million global subscribers over the three month period, and expects that number to rise modestly, to 8.9 million, thanks to the success of original productions such as Birdbox and Stranger Things.
However, its recent U.S. price increase, which will add nearly $1 billion to 2019 revenues, hasn't changed the company's cash burn estimate, which remains at -$3 billion -- after a -$1.3 billion rate over the fourth quarter -- even though operating margins will improve to around 13%. That could prove difficult for a company that's facing increased competition from the likes of Disney (DIS) , AT&T (T) , Apple (AAPL) and Amazon (AMZN) alongside a less-than-attractive balance sheet with $8 billion in debt and a sub-investment grade rating.
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"We feel great about our content investment," new CFO Spencer Neumann told investors on a conference call late Thursday. "Obviously the move to more owned content and production has pulled forward some of that spend relative to the former operating model or predominantly licensed model (and) that has put pressure on the cash flows of the business and cash needs of the business over the past few years."
"So that comes with driving the subscribers in the business, driving the revenues, driving the - scaling the margins in the business as we've committed to from just 4% a couple of years ago to 10% last year and committing to 13% operating margins in 2019 and beyond," he added.
Netflix shares were marked 3.6% lower in the opening hour of trading to change hands at $340.33 each, a move that would trim its three month gain to around 4%.
That said, Netflix's current rate of new customer additions, at around 31 million last year, represents a bigger share of the paid subscriber pie than rival Hulu has been able to generate after more than a decade, Credit Suisse analysts noted.
"Overall, we believe the much stronger 4Q/1Q net adds reinforces our Netflix thesis and we see a healthy set-up for shares in 2019 despite the stock's bounce off the bottom and Fx headwinds as an even stronger content slate fuels the flywheel," wrote lead analyst Douglas Mitchelson.