Netflix (NASDAQ:NFLX) is ending the 2017 financial year with a slam dunk.
The Los Gatos, California-based streaming giant announced global record quarterly subscriber additions of 8.33 million for the fourth quarter. But, more importantly, Netflix added just 1.98 million subscribers in the now fairly saturated U.S. market versus the 6.36 million subscribers it added internationally.
The question is, just how many more people in the U.S. are left to sign up for the service? This is an important question to answer as investors wonder when Netflix will need to get serious about other revenue streams outside of added subscriptions.
How many U.S. Netflix subscribers?
Netflix ended the last quarter with 54.75 million subscribers in the U.S., which is about a 10.8% increase from the year-ago period when it had 49.43 million subscribers. While the U.S. is becoming saturated, Netflix actually added slightly more subscribers in the 2017 fourth quarter (1.98 million net additions) versus the 2016 fourth quarter (1.93 million net additions).
Here's a look at Netflix's recent growth in the U.S.
|Netflix U.S. streaming||2016 Q4||2017 Q1||2017 Q2||2017 Q3||2017 Q4||2018 Q1 (estimated)|
|Net additions||1.93 million||1.42 million||1.07 million||0.85 million||1.98 million||1.45 million|
|Total memberships||49.43 million||50.85 million||51.92 million||52.77 million||54.75 million||56.20 million|
The forecast for the 2018 first quarter is also positive with Netflix predicting 1.45 million net additions in the U.S., slightly better than the 1.42 million net additions it reported for the 2017 first quarter.
Netflix thinks it can add 35 million more U.S. subscribers?
U.S. future growth was a big focus on Netflix's earnings call. When asked about how much room Netflix has left to grow in the U.S., Netflix CEO Reed Hastings brought up the company's previous estimate that it would hit 60 million to 90 million U.S. subscribers.
"We're still only at 55 [million]," Hastings said on the earnings call.
At the high end of the estimate, Netflix thinks it can add 35 million more U.S. subscribers. To put that in perspective, 90 million is about 28% of the current U.S. population of about 327 million people.
And remember, people can share Netflix accounts. The $7.99 per month plan allows content to be streamed on one screen at a time, the $10.99 per month plan allows content to be streamed on two screens at a time, and the $13.99 per month plan allows content to be streamed on four screens at a time.
It's unclear how long Netflix thinks it would take to hit 60 million to 90 million U.S. subscribers. But remember, the company only added about 5.3 million U.S. subscribers in the past year, so adding anywhere near 35 million more would be many years out.
What's Netflix's game plan for U.S. subscriber growth?
Netflix's plan to lure 5 million to 35 million more U.S. subscribers to its platform is simple: Make bigger and better films and shows.
"The real driver is to make the big titles bigger," Hastings said on the call.
The company understands that their best marketing is the word-of-mouth it gets from producing a hit show like Stranger Things or a big, expensive film like Bright that was ripped apart by critics but loved by its audience.
"That's what pulls in people who haven't yet joined as all their friends are talking about the shows," Hastings explained. "That's the dominant accelerator."
After raising prices in October, Netflix now has the extra cash to produce bigger and better pieces of content. Hastings said the price change had little effect on sign-ups and growth, which is a sign that subscribers believe the content Netflix is producing is worth the few extra dollars.
"Consumers are tolerant as long as something's improving," Hastings said, adding that there were no plans for a second price hike in the near future.
If 2018 looks anything like 2017 in terms of content and growth, Netflix could hit the low end of its U.S. subscriber target sooner than expected.