Netflix FY numbers - still strong growth

Since Netflix released their Q4 results on the 22nd of January the share is up nearly 30%. Wow. And that is off a share price that was up 70% last year. The market cap of the business now sits at $120bn, a similar size to Naspers.

Streaming revenue grew by 36% (in other news they still rent DVDs) for the full year. They added a whopping 24 million new memberships in 2017 to bring the total close to 118 million subscribers. How many people out there could be potential Netflix subscribers? They need access to good internet and be able to afford $11 per month (I suppose those two come hand in hand). I would say at least 1 billion today and growing.

Guidance for this year was again positive. They expect to add another 6.35 million subscribers this quarter. At that rate you would expect at least 30 million new subscribers for 2018. 150 million subscribers paying $11 a month would bring in close to $20bn in revenues. For 2017, revenues came in at $11bn. You can see how quickly this can grow. Another growth avenue would be price increases (which they did do in 2017). Paul thinks the product is far too cheap. I tend to agree. Compare that to DSTV who charge up to R1 000 per month for the premium service.

Content is king!



My favourite show at the moment is The Crown, a show that follows the life of Queen Elizabeth. Like most great companies, clients are their best salesmen. People talking about "must watch series" will convince others to sign up. And it really is so easy. Most TV's these days link to the internet, all you need is to add your Credit Card details on the easy to navigate website.

The hard part for Netflix is creating world-class content. They plan on spending $8bn on content in 2018. This is a great outcome for that industry! As long as they keep churning out great series and movies, they will continue to do well.

The industry is very competitive. The potential Disney Fox tie-up could create another streaming behemoth. Amazon Prime is gaining traction with quality content, and Apple is also jumping on board. But if you signed up for all these services at the same time, you would still pay less than the old school satellite and cable providers. In the future you will have 3-4 streaming services which will also cover sport. That is my prediction.

This is a high flyer and can be volatile. We like it as a small allocation amongst a diversified portfolio.