House of Cards pushes Netflix Q1 operating margin to 10%

Netflix has just announced its Q1 2017, result showing its operating margin beats its estimate of 7% to 9.7%.

The company said in a letter to its shareholders that “Due to content (primarily House of Cards season 5) moving from Q1 to Q2, we had higher operating margins in Q1 (as forecasted) at 9.7% than our plan for the year (about 7%). We forecast operating
margin at 4.4% in Q2, placing us on track to reach our 7% target for the full year”.

However, the result shows that the global ambitions of Netflix is no longer as bright as it was planned out. The company disclosed that “international net additions decreased 22% year over year”.

Subscription growth continued to decline across Asia, Africa and Middle East. The company still see most of its numbers from Latin America, Europe, and North America, its home turf where more than 50% of its viewers are based.

To push its service across weak markets, Netflix said it will spend USD1 billion on marketing initiatives which will include further investments in “programmatic advertising with the aim of
improving our ability to do individualized marketing at scale and to deliver the right ad to the right
person at the right time”.

Net income for the period rose to USD174 million versus USD27 million realized same quarter last year.

The company is trying hard to reduce its negative cashflow. Free cash flow in Q1’17 was -$423 million vs. -$261 million in the year ago quarter and an improvement from -$639 million in Q4’16. The growth in our original content means we continue to plan to have
around $2B in negative FCF this year.

Netflix has about 93 million active subscribers at the end of the period.