In Netflix's (NFLX -1.36%) fourth quarter, the streaming movie and television giant crushed it when it came to member additions. It added 7.05 million members, far ahead of management's forecast to add 5.2 million new members. Can Netflix outperform its guidance for member additions in Q1, too?
When Netflix reports first-quarter results on April 17, the company will reveal how many members it added in its first quarter. Here's a look at what to expect from the closely followed metric.
Can international member additions surprise?
For Netflix's first quarter, management said it expected the company to add 5.2 million new members -- 1.5 million in the U.S. and 3.7 million internationally.
While 5.2 million new members would be a nice uptick to the 93.8 million members Netflix ended 2016 with, it notably would mark a deceleration in member additions for the company compared both to the 7.05 million members it added in Q4 and even to the 6.74 million members it added in the year-ago quarter. But this doesn't mean Netflix's growth story is worsening. The company is simply up against a very tough comparison. In the year-ago quarter, Netflix launched its service in a whopping 130 new countries. Going further, Netflix's 6.74 million member additions in the year-ago quarter represents quite a rosy figure -- 27% higher than management's forecast for the quarter.
But, Netflix could exceed guidance again, particularly internationally. In the company's fourth-quarter shareholder letter, management was very optimistic about how its service was performing in internationally: "[International] growth was very broad based geographically as our original content continues to be well-received all over the world."
Considering that the growth was "very broad based," another better-than-expected quarter in a handful of key international markets could push the figure above management's estimates again.
Given that international member additions have grown to account for as many as 70% of new members in recent quarters, it will likely ultimately be Netflix's international member additions during the quarter that will determine whether or not the company misses, meets, or exceeds its guidance for the important metric.
With Netflix's recent forecast-beating international additions in mind, as well as the company's broad-based geographic growth in Q4, I'm betting Netflix adds around 6 million total members during the quarter.
Expectations are high
But even if Netflix reports member additions above its forecast, investors should keep in mind that it may take more than this to move the stock higher. Expectations for Netflix are high. The stock is up nearly 40% in the past twelve months and about 10% in the past three months alone. In addition, Netflix's valuation is undoubtedly steep, evident by its price-to-sales ratio of 7.1, more than twice the industry average of 2.6.
Whatever Netflix reports for member additions in its first quarter, investors may want to look to see what the key drivers for member growth were, as well as review management's guidance for member additions in Q2. After all, Netflix's members are the foundation of the company's business model.