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Netflix Earnings - International revenues exceed U.S. with over 139 million paid memberships worldwide

30 January 2019  |  TRADING IDEAS

Revenue: $16 billion (+35%) and operating income: $1.6 billion (+91%)

Netflix increased annual revenue 35% to $16 billion in 2018 and nearly doubled operating income to $1.6 billion with an operating profit margin of 10%.

Looking into the revenue structure, international streaming gained $7.8 billion, which is the largest part of the company’s revenue in 2018. Revenues from international streaming increased 52.9% annually while 24.3% in the US.

Paid membership reached 139.3 million; 80.8 million internationally (+39.7% year-over-year) and 58.5 million in the US (+12.9%)

The number of free trial users that could be potential users in the future reached 9.2 million; 7.1 million internationally and 2.1 million in the US. International free trial users are three times as many numbers as the US free trial users.

Significant investments on original contents contributed to attract world’s top directors such as Alfonso Cuarón who is best know for ROMA, Gravity and Children of Men. For talents, Netflix became a launching pad as their popularity on social media skyrocketed.

Bird Box has been watched by over 80 million member households in its first 4 weeks
ROMA has been played over 900 unique screens around the world
Elite, Spanish original, has increased Instagram followers of the casts

Netflix started its business with online DVD rental services, but the number of DVD rental users decreased by half of 2014. However it is still one of the highest revenue segments, ended up with $366 million revenue and $ 212 million profit.

On the other hand, the largest revenue is still derived from the US domestic streaming business, which contributes more than $500 million profit every quarter. International streaming business became profitable in 2017 and it gained $218 million profit in 2018 3Q.

Contents assets valued at $20 billion and long-term debt at $10 billion.

Looking into the cost structure, it is remarkable that Cost to Sales Ratio decreased to 63.1% in 2018 from 72.8% in 2012. The company’s aggressive original contents investment seems to be paying off.

Netflix reported $10.3 billion in long-term debt and $ 8.4 billion in contents liability as of Dec 2018. The company’s contents asset valued at $20 billion which accounts for nearly 80% of total assets.

Netflix reported negative operating cash flow for the 4th year in a row. The negative cash flow is financed with debt. As a result, financing cash flow increased to $4 billion in 2018.

The biggest factor of the negative operating cash flow is investment on original content. The company invested $13 billion in content assets in 2018.

Netflix’s today’s market cap is $ 147.4 billion which increased the price at the end of 2018 by 45%.

The company reported negative FCF (free cash flow) of $3 billion for 2018. The company expects 2019 FCF will be similar to 2018 and then improve each year thereafter. The company also announced Spence Neumann, a former Disney finance exec, joined as its new CFO.

The company raised its monthly subscription price (for the standard plan, from $10.99 to $12.99) to gain operating income. The company will be aiming for further growth with the long-term vision and necessary funding.

The potential competitor 

iQiyi Inc.(NASDAQ: IQ), a Chinese Netflix-style video streaming service controlled by search giant Baidu Inc., went public on NASDAQ in March 2018.



The original article was published by Stockclip, Inc. on 18/01/2019.

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