Netflix beats by $0.03, reports revs in-line; guides Q2 EPS below consensus
- Reports Q1 (Mar) earnings of $0.06 per share, $0.03 better than the Capital IQ Consensus of $0.03; revenues rose 24.5% year/year to $1.96 bln vs the $1.97 bln Capital IQ Consensus.
- Co issues downside guidance for Q2, sees EPS of $0.02, excluding non-recurring items, vs. $0.05 Capital IQ Consensus Estimate.
Key Excerpts from Shareholders Letter
- US revenue rose 18% y/y, reflecting 14% growth in average paid memberships and a 3% increase in ARPU.
- Our Q1 international contribution loss of $104 million came in better than forecast due to the timing of content spend.
- Our established markets around the world are all growing, and in early Q1 we added 130 more countries. By expanding broadly at once, we are learning more quickly about how best to please consumers across a wide variety of cultures and markets. In most of these markets, so far, Netflix is offered only in English and payment methods are limited primarily to international credit cards. In the coming quarters, we will add more local languages, content, payment options and customer support.
- In the US, our Q2 net adds forecast of 0.5 million is inline with prior years (0.5, 0.6, 0.6, and 0.9 million from 20122015), taking into account a modest impact from the beginning of ungrandfathering
- We expect Q2 international contribution loss to improve sequentially primarily due to recent favorable currency movements. We anticipate that international contribution losses in the second half of 2016 will be similar to the first half, as ongoing investments offset improved profitability in our more mature markets.
- The increase in ARPU will allow us to invest more in content next year, and we are taking up our expected spend from about $5B in 2016 to over $6B on a P&L basis in 2017 (more on a cash basis).
- We are now turning our attention to mobile specific encodes, with a desire to deliver better video at lower bandwidth to these devices, which are increasingly important in our newest markets.
- We currently have $2.4 billion of long term debt. With our low debt to enterprise value of 5%, our plan is to raise additional capital through the high yield market later in 2016 or in early 2017.