5 Surprises in Netflix's Latest Earnings Report
1. Netflix Is Gaining More New Members Internationally
The most noteworthy nugget in Netflix's report is that it closed out the year with 57.39 million streaming subscribers worldwide. That's 4.33 million more digital subscribers than it had just three months earlier, and that's important because Netflix was only forecasting 4 million net additions. After falling short of its guidance during the third quarter -- a move that sent the stock sharply lower in October -- it's refreshing to see it get back on track.
That's the headline number, but the interesting meat here is that most of that growth came from Netflix's expanding business outside of the United States. Its domestic base of streaming accounts moved 1.89 million higher during the final three months of 2014, but internationally we saw Netflix's base soar by 2.44 million. That's a pretty big deal, especially since Netflix's international user base is just half as large as its stateside audience.
2. Netflix Didn't Spend a Penny on Marketing its DVD Plans
Netflix still mails out DVDs in red envelopes. People sometimes forget that. It's a fading legacy business, with the number of customers receiving DVDs and Blu-rays from Netflix diminishing with every passing quarter. We're down to just 5.8 million homes, far removed from its peak of nearly 20 million five years ago.
An interesting line item in Netflix's financial statements is that it didn't spend any money to market its DVD rentals in 2014. It only invested $292,000 to promote the platform in 2013. It seems as if it has resigned to let its physical rentals fade to black quietly.
3. Original Content Is a Good Value for Netflix
Netflix is spending a lot of money on exclusive content, and the biggest shocker may be how successful it is when compared to existing shows and movies that make up the lion's share of its growing digital catalog.
"Our originals cost us less money, relative to our viewing metrics, than most of our licensed content, much of which is well known and created by the top studios," reads Netflix's letter to shareholders.
It may cost a lot of money to put out "House of Cards" or "Orange Is the New Black," but when you divide that investment by the amount of times the content gets viewed, it's cheaper than the theater-released movies and network-aired TV shows that Netflix licenses for its subscribers. It's no wonder Netflix and rival Amazon.com (AMZN) are ramping up the money that they are earmarking for proprietary content.
4. It's a Small World After All
Netflix has been expanding into foreign markets, and it hasn't come cheap. Netflix's international division has been posting losses that drag down its overall performance on the bottom line. Investors wondering when it will finally start to pay off in terms of profitability received some encouraging news on Tuesday.
Netflix now believes that it will complete its global expansion by the end of next year, paving the way for it to start generating material international profits starting in 2017. Just in case you weren't keeping up to date with Netflix's pushpins on the global map, it will roll out its service in Australia and New Zealand later this quarter.
5. "The Interview" Is Coming
Remember that Seth Rogen movie that nobody wanted to see until it seemed as if nobody would be able to see it? Sony's (SNE) "The Interview" will stream exclusively on Netflix starting on Saturday.
The movie that was shunned by most multiplex operators after threats of violence began to trickle in last month will stream on Netflix just 30 days after its limited theatrical release. It's an unusually fast turnaround time, especially for a controversial flick that would seem to have more staying power at the retail level than in local theaters. The movie will only be available in the U.S. and Canada. It probably goes without saying that North Korea isn't on Netflix's list of markets that it plans to enter in the next two years.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks.