In its first quarter since announcing it would raise prices in some cases by as much as $2 per month, Netflix reported the greatest quarterly subscriber growth in its history (9.6 million, or 16%) finishing the period with 149 million global customers. But most of that growth was outside of the U.S., which started to show signs of a slowdown in the period.
Netflix added 7.9 million new paying customers outside of the U.S. in the period, up 31% from the prior year. But domestic growth slowed to 1.7 million new paying customers in Q1, compared to 2.3 million additions in the prior year.
Still, Netflix said it was encouraged by the Q1 results.
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Revenue rose 22% to $4.5 billion in the quarter and net income increased 16% to $344 million (76 cents per share).
“We’re working our way through a series of price increases in the U.S., Brazil, Mexico and parts of Europe,” Netflix said in its quarterly letter to shareholders. “The response in the U.S. so far is as we expected and is tracking similarly to what we saw in Canada following our Q4’18 increase, where our gross additions are unaffected, and we see some modest short-term churn effect as members consent to the price change.”
The company said in January that it would raise the price of its two-stream HD tier (its most popular) to $12.99 per month from $10.99 a month. Its low-end single stream HD plan increased by $1 per month to $8.99 a month and its premium 4K/HDR-enabled, four-stream plan rose by $2 to $15.99 monthly.
Netflix said it expects subscriber growth to slow down a bit in Q2 to about 5 million additions globally, while streaming ARPU and total revenue growth are expected to accelerate. Netflix predicted that Q2 streaming revenue would rise by 2% (compared to a -2% in the prior year), while total revenue should grow by 26%, compared to a 22% lift in Q2 2018. Excluding currency adjustments, Netflix forecast streaming ARPU and total revenue would rise 7% and 32%, respectively in Q2.
“While there will be some quarter-to-quarter lumpiness in operating margins due to the timing of spending, our full year 2019 operating margin target of 13% is unchanged, which means that we expect operating margin in the second half of the year will be higher than the first half,” the company said in its letter to shareholders.
Netflix also said it wasn’t worried about increasing competition from new streaming services from Disney (Disney+) and Apple (Apple+), adding in the shareholder letter that “the clear beneficiaries will be content creators and consumers who will reap the rewards of many companies vying to provide a great video experience for audiences.”
Netflix continued that it did not expect new entrants to materially affect its growth because of the sheer size of the market and the differences in the content each service offers. Even with 149 million customers globally, Netflix said it only accounts for about 10% of total TV usage in the U.S. and just 2% of global downstream internet traffic.
“We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing (similar to how U.S. cable networks collectively grew for years as viewing shifted from broadcast networks during the 1980s and 1990s),” Netflix said in the letter.
Netflix shares were down about 1.4% ($4.78 per share) to $354.68 each in after-hours trading April 16.
