Check out the latest Netflix earnings call transcript.
Slated to report fourth-quarter results on Jan. 17, streaming-TV company Netflix (NASDAQ:NFLX) will soon reveal how many streaming members it ended the year with. Ahead of the quarterly update, expectations are high for the key metric. Year to date, the company has seen significant momentum with member growth, adding more members in the first three quarters than it did during the same time last year.
Can Netflix keep up its momentum?
What to expect
For its fourth quarter, Netflix guided for 9.4 million net member additions -- a figure that would come in ahead of the 8.33 million members the company added in the fourth quarter of 2017. That would put total members at the end of the year at an astounding 146.5 million, up from 109.3 million in the year-ago quarter.
Netflix said in its third-quarter shareholder letter it expects most of these new members to come from its international markets, where management is guiding for 7.6 million new members. Domestically, Netflix expects to add 1.8 million members. These figures compare with 6.36 and 1.98 million net member additions internationally and domestically in the fourth quarter of 2017, respectively.
Highlighting the company's strong growth recently, Netflix added 19.5 million members during the first three quarters of 2018, up from 15.5 million in the first three quarters of 2017. With such significant momentum, it's no surprise that management is guiding for more member additions in the fourth quarter of 2018 than in the year-ago period.
Importantly, investors should keep in mind that there's no guarantee Netflix will hit its guidance for the final quarter of 2018. Indeed, Netflix missed its guidance for net member additions by over a million members in its second quarter. The miss was a reminder of management's guidance method: The company doesn't intentionally try to undershoot its actual results but instead strives for accuracy with its forecasts. That means that "in some quarters we will be high and other quarters low relative to our guidance," management said in the company's second-quarter shareholder letter.
Of course, just as important as Netflix member additions during fourth quarter will be its guidance for member additions in Q1. This metric will importantly give investors a glimpse into how management expects member growth to fare 2019.
Starting with its January quarterly update, management is only guiding for its paid member additions. Looking to the first quarter of 2018 to inform how this January's forecast may look, investors should expect Netflix to guide for around 8 million paid member additions -- in line with the approximately 8 million paid members the company added in the first quarter of 2018. Guidance for this many paid members would mean the company is maintaining its strong pace of growth.