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April 17, 2019

Netflix Q1 results: Growth at every turn

By MarketLine

Streaming giant Netflix has had a strong start to the year following the announcement of its Q1 results.

Investors are expected to respond positively to the company’s most recent performance. Revenues at Netflix grew by 8% in Q4 2018, and by over 22% year-over-year. The company has forecasted further year-on-year growth in Q2 of more than a 25%.

The impressive performance of the company continues to surprise analysts. Earnings-per-share estimates by analysts have been lower than the actual EPS performance in all of the last four quarters. Moreover, the share price has increased by over 650% over the last five years.

Netflix has also posted a moderate 2.8% growth in operating income year-on-year and an impressive 25% growth in global paid members – one of the company’s most important metrics.

Netflix Q1 results: Two factors primarily responsible for growth

By being one of the first players to offer an extensive library of third-party content, the company has established a loyal fan base and widespread popularity at a time when traditional television providers are under increased threat from online alternatives.

Furthermore, the company has invested significantly in recent years in its line of Netflix Originals shows and movies. The company is becoming increasingly recognized as not only a streaming platform but as a creator of some of the world’s most popular shows. Shows such as Stranger Things, Black Mirror, House of Cards and The Crown have performed well in an increasingly saturated video streaming market.

Netflix will have to make some serious mistakes to lose its market position at this point. The proposed increase to subscription costs to provide more funding for new content will likely be completely accepted by customers, and the company has done an incredible job at developing itself into a globally-recognized and respected brand and market leader.

Netflix is not free of problems

Yet some problems will continue to be a source of concern. The company is investing large sums of money into producing new programming, and for now investors are happy for senior management to pursue growth over profits. Unless subscriber numbers grow significantly beyond the current level, positive sentiment towards the company will soon evaporate.

Even though the company has performed well of late, there is no guarantee the required subscriber growth will happen as intended.

Read more: Why the increasing Netflix debt is worth it to stay on top of the content game