Netflix Adds Nearly 10 Million Subscribers During First Quarter

Netflix added more than 9.6 million subscribers during the first three months of the year but warned that the next quarter could see slower growth. 

The company, which was expected to add just under 9 million members during the period, now has 148.9 million total paying members. It ended 2018 with 139 million paying members.

During the first quarter, Netflix brought in revenue of $4.5 billion, up 22 percent year over year, and had earnings of 76 cents per share. Netflix was expected to bring in revenue of $4.5 billion and earnings of 57 cents per share, per FactSet. Meanwhile, Wall Street was looking for 8.96 million new subscribers during the period, broken down into 1.6 million in the U.S. and 7.3 million abroad.

The company's stock was trading down as much as 6 percent after-hours on the earnings report. Netflix's stock market performance is often tied to investor concern over its ability to keep growing a fast clip, and for the second quarter it projected that it will add just 5 million new members, an 8 percent drop year-over-year. The soft quarter comes as increased streaming competition looms for the company, with new entrants from Apple, Disney, WarnerMedia and NBCUniversal all on the way.

The three-month period from April to June also is when Netflix is rolling out a price increase for the bulk of U.S. subscribers. The changes to the pricing plans, announced in January, have been taking effect in the U.S., Brazil, Mexico and parts of Europe. The company says the response in the U.S. "is as we expected," with gross additions unaffected despite some short-term churn. 

Investors are watching closely to see how Netflix's subscriber base responds to new streaming services expected to inundate the market later this year. Less than a week before Netflix's earnings report, Disney unveiled direct-to-consumer app Disney+, which will feature thousands of film and TV titles from the entertainment company's library as well as originals featuring IP from brands Marvel, Pixar and Lucasfilm. In order to launch Disney+, it announced plans to pull much of its licensed programming from Netflix, and it has priced the new service at $7 per month, $2 less than Netflix's cheapest plan. On March 25, Apple also laid out plans for its Apple TV+ offering, which will feature a slate of star-studded originals.

Netflix addressed the competition in its shareholder letter, noting, "Recently, Apple and Disney each unveiled their direct-to-consumer subscription video services. Both companies are world class consumer brands and we’re excited to compete; the clear beneficiaries will be content creators and consumers who will reap the rewards of many companies vying to provide a great video experience for audiences."

The company continued that it doesn't "anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings." Netflix believes it will continue to grow as it invests in more content and the improvement of its service. 

In order to invest in content, Netflix has been spending at a significant clip. During the first quarter of the year, the company grew its negative free cash flow of $460 million, compared with $287 million during the same period in 2018. It expects negative free cash flow to be around $3.5 billion for the year, due in part to taxes and additional investments in real estate. Netflix is currently in talks to acquire the Egyptian Theatre in Hollywood for an undisclosed price said to be in the tens of millions. 

Netflix shares closed the day up 3 percent to $359.46.

More to come.