Price rises did little to dent the rapid customer growth at Netflix, which posted its strongest quarter for new subscriptions in results announced on Tuesday, but it warned that Wall Street forecasts for the next few months might be overheated.
The video streaming service signed up 9.6m subscribers in the first three months of the year, ahead of forecasts and coming within a whisker of 150m customers around the world.
Its expectation for the second quarter, though, was a net addition of 5m subscribers, lower than the 6m analysts had predicted. Netflix shares were modestly lower in after-hours trading.
The lighter forecast comes as Netflix faces looming competition in the streaming video market it pioneered.
Disney last week unveiled plans for a new streaming service for about half the price of a standard Netflix subscription, sending Disney’s shares soaring. Apple last month made a similarly splashy announcement for its own streaming service. Disney, Apple, WarnerMedia and Comcast are all planning to launch services in the coming year.
That was not the reason for the lighter guidance, however. Addressing Disney and Apple’s move on to its turf in a letter to investors, Netflix said: “We don’t anticipate that these new entrants will materially affect our growth . . . We believe there is vast demand for watching great TV and movies and Netflix only satisfies a small portion of that demand.”
Netflix raised prices for all customers in the US, its largest market, in a move that was cheered by investors at the time. For its most popular tier, which offers video in high-definition, prices rose by $2 a month to $13 — a dollar more than rival Hulu’s ad-free subscription.
Netflix said that the response to the price changes in the US was “as we expected”. More than 1.7m of the 9.6m new customers in the first quarter came from the US, where prices rose up to 18 per cent.
Revenue in the first three months of the year jumped 22 per cent to $4.52bn, versus consensus forecasts for $4.5bn. Net income climbed 19 per cent to $344m for the quarter, or 76 cents a share on a diluted basis.
As Netflix spend billions to make shows and films, routinely outbidding traditional Hollywood studios, it has justified the splurge with fast subscriber growth. The strategy has paid off: as of the end of March, Netflix had 149m subscribers across the globe, giving it a big head-start on Disney and Apple.
Netflix uses debt to help finance its heavy spending on content. Long-term debt stood at $10.3bn at the end of March. Netflix has forecast a free cash burn of $3bn in 2019, although it expects an improvement after that.
The company highlighted some of the fruits of this investment in the quarter including Triple Frontier, an original Netflix film starring Ben Affleck. Netflix claims the action movie was watched in more than 52m households in its first four weeks on the service.
Shares in Netflix were down about 1 per cent in after-hours trading following the results. Netflix shares have soared more than 30 per cent this year, while the S&P 500 index has climbed 15 per cent.