By: Sarah Turnbull
Netflix is an American company that functions as a subscription-based movie, television, and documentary rental service. Members have complete control of what they watch and when they watch it through Netflix’s Internet streaming service. U.S. only members have the option of receiving DVD rentals by mail.
While it has a large Canadian consumer base, it is traded solely on NASDAQ, an American stock exchange.
On January 22, Netflix publicly released its fourth quarterly earning reports. Stock prices shot up 16.4 percent that day, as a result of the company’s successful finance report.
In 2013, the company made a profit of 112 million dollars on 4.4 billion dollars in revenue, a net margin of 2.6 percent. Their earnings have increased 21 percent since 2012.
This comes as no surprise as their subscription rates have been steadily increasing over the years.
Their fourth quarter efforts in 2013 drew in 2.3 million new Netflix users in the U.S. This came to a whopping 3.4 million members domestically, including both paid and free-trail consumers.
Since opening up their network to international markets two years ago, Netflix has seen a major increase in subscription rates across the globe. In the final quarter of 2011, international subscriptions came to 1, 858 thousand, as opposed to 10.9 million in the fourth quarter of 2013.
Below is an annotated copy of Netflix’s fourth quarter earnings report. Click on Notes to scan through the document.
While the numbers reflect the continued success of the business, Bernard Von Teichman, an Investment Services Associate at Richardson GMP, says that stock buyers should be weary of the recent influx.
“You don’t want to buy in at its peak price. Right now the stock price has never been this high, so you’re taking on that risk. I just think you can find better risk adjusted returns, elsewhere,” says Von Teichman.
The company has seen a shift away from DVD rentals and mail delivery, towards a major trend of online streaming. Netflix provides its users with over one billion hours worth of TV shows and movies.
This past year, 63 percent of the company’s revenue came from domestic streaming subscriptions. This is a 25.9 percent leap from last year results (Note to Reader: Refer to segment contribution results in Q4 report).
While the viewership online is soaring, the fourth quarter report also shows domestic DVD sales down by 19.9 percent.
Professor James Bowen, a business technology expert at the Telfer School of Management says that as a result of companies like Netflix and HBO, there is a major cultural shift towards online television streaming.
“The idea that a broadcaster somewhere decides at what content, at what channel, and at what time we’re going to see something, is just so totally 20th century,” Bowen says.
This type of media consumption has led to what Netflix calls “Binge-Watching.” A recent survey states that 73% of online streamers consider binge watching as 2-6 episodes in one sitting.
Companies like Netflix have provided viewers with the ability to control how much TV their going to watch in a day.
However, Bowen says that as a result of varying copyright legislation in different countries, Netflix may run into problems with their online streaming service.
“What you can see on the Canadian version and the American version is different,” says Bowen. “If they’re going to try and do this internationally, they’re going to have to have many different menu selections based on varying geographical regions.”
Nevertheless, CEO Reed Hastings and CFO David Wells predict similar financial growth trends in the upcoming quarter.
In 2014, Netflix plans to add to their extensive TV series selection with new seasons of the House of Cards, Orange is the New Black, Lilyhammer, and Derek.