By Shalini Ramachandran and Tess Stynes
Netflix Inc. said it plans to complete an aggressive
international expansion in two years and deliver "material global
profits," as the streaming-video provider faces a slowdown in U.S.
subscriber growth.
In the fourth quarter, Netflix added 1.9 million U.S. streaming
subscribers, down from 2.3 million in the year-earlier period,
bringing its total to 39.1 million. Overall, the company added 4.3
million streaming customers, exceeding its forecast of 4 million,
as foreign markets grew faster than expected.
The results cheered investors, driving the company's shares up
16% in after-hours trading.
In a letter to shareholders Tuesday, Netflix said it plans to
expand to 200 countries by 2017, up from its current 50, while
staying profitable. Earlier, a top Netflix executive had told an
investor conference that the streaming service would go global
"within five years."
Netflix Chief Executive Reed Hastings said the company was
encouraged by results in its first set of markets, including Canada
and Nordic and Latin American countries, which have turned
profitable as a group. "The ability to click and watch and binge
episodes has really resonated with people," Mr. Hastings said in an
interview. "It has made us realize this is very likely to work on a
global basis."
Last fall, Netflix started offering its service in six European
countries, including France and Germany. The company said it
expects to add Australia and New Zealand later this quarter.
Netflix is also exploring plans to enter China.
Mr. Hastings said the company will need to obtain a government
license in China, which isn't guaranteed, and will be "very
cautious" if and when it does enter that market.
In the fourth quarter, Netflix added 2.43 million subscribers
outside the U.S., topping its expectations of 2.15 million and a
significant jump from the 1.74 million international subscribers it
added a year earlier. The company ended the quarter with 18.3
million international streaming customers.
Janney Capital Markets analyst Tony Wible said investors were
pleased with the stronger global customer growth, pricing leverage
and a "faster scaling of investments" abroad.
In the near term, though, the international operations will
continue to weigh on profits, because of the costs of expanding to
new countries and acquiring content. The international segment's
loss widened to $79 million in the fourth quarter from $57 million
a year earlier. The company expects lower full-year operating
income for 2015 than for 2014, as a result of the global
expansion.
In the shareholder letter, Netflix said the downshift in U.S.
subscriber additions was a "natural progression" as it grows. Last
quarter, Netflix had largely blamed a price increase over the
summer for its slowdown in U.S. subscriber growth. In Tuesday's
letter, the company said that after additional research, it
believes the declines "would have largely taken place independent
of the price change."
The company said it has flexibility in "how quickly we grow
content and marketing spend" as subscriber growth slows, and said
it can continue to expand the U.S. segment's operating profit
margins.
Netflix said its original shows, including "House of Cards,"
"Orange is the New Black" and "Marco Polo," are among its "most
efficient" programming, costing less money relative to their
viewership than shows licensed from major studios. Netflix doesn't
release viewership figures.
Netflix has been a disruptive force in the U.S. pay-TV world,
luring customers away from cable and satellite TV providers. But
the streaming service could face new competition itself as other
companies enter the online-video market. Time Warner Inc.'s HBO
this year will offer a standalone streaming service, while Dish
Network Corp. is rolling out a $20-a-month online-TV package.
Addressing the Dish offering, dubbed Sling TV, Mr. Hastings said
it has "very attractive pricing" but added, "I don't think it
materially changes the desire to have Netflix." Previously, he has
said he thinks consumers will sign up for both HBO and Netflix.
Netflix also said it plans to offer "The Interview," the Sony
Pictures comedy about an attempted assassination of North Korean
leader Kim Jong Un. Sony began distributing the movie through
on-demand platforms after major theater chains decided not to
release it following threats from hackers believed to be connected
to Pyongyang.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Tess Stynes at tess.stynes@wsj.com
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