With record subscriptions, Netflix earnings trigger stock rally

Continuing its aggressive market share expansion, video-on-demand service provider Netflix (NFLX) Monday reported better than expected subscriber growth and earnings for the first quarter. Streaming revenues climbed 43% to a record high, surpassing analysts’ forecast. The upbeat results triggered a rally, and the stock gained significantly.

In the first quarter, total membership surged 26% annually to an all-time high of 125 million, and global net subscriber additions jumped 50% to 7.41 million helped by continued strong acquisition trends.

At $0.64 per share, first-quarter earnings were 60% higher compared to last year. Meanwhile, earnings were negatively impacted by a non-cash unrealized loss from forex re-measurement on Eurobond. Total revenues jumped 40% to $3.7 billion during the quarter.

Continuing the recent trend, the video streaming giant registered negative cash flow in the first quarter, reflecting the substantial investment in content acquisition. For the full year 2018, the company forecasts free cash flow between -$3 billion and -$4 billion.

Netflix expects global net subscriber additions to be 6.2 million in the second quarter — 1.2 million in the US and 5 million outside the US. Operating margin is estimated at 12%. For the whole of 2018, the company expects operating margin in the range of 10% to 11%.

During the first quarter, the Scotts Valley, California-based company signed a deal with hit-maker Ryan Murphy, after forging similar tie-ups with Shonda Rhimes, Shawn Levy, and Jenji Kohan last year. With its subscriber growth in the US softening in recent months, the company’s strategy will be to focus more on the overseas market this year and beyond.

Interestingly, the impressive results indicate that the recent price hike has not affected investors and customers. In the fourth quarter, Netflix had raised the charges of its standard and premium plans by one dollar.

Netflix’s shares grew around 6% in the after-hours Monday, paring the loss it suffered during the regular trading hours. The stock gained more than 60% so far this year, marking the biggest gain by any S&P 500 company during that period.