Netflix Inc. released fourth-quarter earnings Tuesday afternoon, and the streaming service said it added 5.7 million paying U.S. subscribers during 2015, of which 1.33 million came in the final quarter of the year. It also added 3.49 million paying international subscribers, sending shares climbing in after-hours trading. The service now has 74.76 million global subscribers.
Netflix surpassed its own expectations, having anticipated 1.3 million paid membership additions in the U.S. in Q4, and 3.1 million additional international paid members. (The service launched in Spain, Italy and Portugal in the fourth quarter.) Investment firm ITG had cut its subscriber target for Netflix to 1.13 million net domestic adds last week.
Unfortunately for CEO Reed Hastings, despite making a big splash at the Consumer Electonics Show earlier this month by announcing the launch of Netflix in more than 130 additional countries, bringing the total to more than 190, subscriber numbers for those 130-plus countries won't be available until next quarter. At market's close, Netflix stock was trading at $107.89, up slightly from the day's opening. As of publication, though, the stock was up to $117.
"It's all about the subscribers, as usual," InvestorPlace.com assistant editor and analyst John Divine told International Business Times, adding that by that metric, the coming international growth should send shares even higher. "That says some good things about Q1."
BTIG analyst Rich Greenfield still considers Netflix a "must own" stock, with a target price of $136. But even if the rate of global subscribers continues to grow exponentially, concerns about profitability are creeping into the conversation about the streaming giant. Investment firm Wedbush considers it an underperformer and lowered its own target price for the stock to $40 in a note to investors last week.
While a $40 target seems a little extreme to Divine, he agrees that Netflix is overvalued, given the slowdown of the expansion of its U.S. base and the fact that the international streaming segment is still hemorrhaging money, with a negative 19.2% contribution margin. That figure measures how much per dollar something is sold for against how much it costs to sell. "The fact of the matter is, the U.S. still does account for a huge percentage of where the company is at. And that market is pretty saturated. If your growth vehicle is supposed to be a place where you're losing money, i.e. international, that's not good."
Another concern stems from spending. Netflix Chief Content Officer Ted Sarandos told reporters on Sunday the company plans to spend $6 billion on content alone (both acquired and original) in 2016. It took in $6.1 billion in revenue in 2015.
The streamer will unleash 600 hours of original programming onto its subscribers in 2016, Sarandos said, and is looking at making more and more shows outside the U.S., like the Pablo Escobar bioseries "Narcos," which was produced by a French-owned company (Gaumont International), filmed in Colombia, and starred a Brazilian (Wagner Moura).
"Right now we look at international original production as a great opportunity, particularly because we can get viewing outside the country of origin," Sarandos said Sunday, adding, "If we were spending a lot of money on shows no one was watching, we'd quit."