Despite experiencing a slowdown of its growth in the U.S. market, Netflix announced that it expects to add 6.1 million new subscriptions through the first quarter of 2016 courtesy of its expansion to other countries this month.
Netflix's decision to aggressively push into international markets last quarter brought in more new signups than what the company and its investors expected, causing its shares go up by as much as seven percent. Subscriptions to the online streaming service ballooned to 74.8 million by the end of December of 2015.
The company is now planning to bring in an additional 6.1 million subscribers through March by way of its expansion to other countries aside from China. Netflix said it is still trying to determine the best course to introduce its service to Chinese audience.
Netflix's projection is more optimistic compared to the estimated 4.94 million average new subscribers set by market analysts that were surveyed by FactSet StreetAccount.
While Netflix failed to reach its expected subscriber numbers in the U.S. for a second straight quarter, the company's gain in international markets eased concerns of investors regarding its slowing domestic growth.
Company shares rose following Netflix's announcement that it had added 17 million new subscribers in 2015, including close to 12 million customers overseas.
"The value of the stock is coming from international markets," analyst Mark Mahaney from RBC Capital Markets explained.
"A domestic subscriber miss two years ago would have caused the stock to trade down regardless of the international number."
Overseas Expansion
Several countries already offer services for video streaming, but Netflix's reputation as a leading provider of Hollywood movies and TV shows allows it to gain subscribers in new markets more quickly.
Ted Sarandos, Netflix's chief content officer, said viewers are eager to find out when the online streaming service will be available in their countries and which shows it will provide.
Netflix shares increased by 7.7 percent to $116.21 in extended trading following the announcement of subscription growth. The company's stock gained 3.7 percent to $107.89 by the time trading closed in New York.
The addition of new customers is needed to allow Netflix to have enough funds to keep up with growing programming costs, which is expected to reach a total of $5 billion this year.
Reed Hastings, Netflix's chief executive officer has promised to provide material profits as soon as the company finishes up its international rollout.
On Jan. 6, Netflix started delivering its programming to 130 new countries except for China. Hastings said the online streaming service has remained profitable in the territories where it is available for the past few years, and that Netflix's margin in the American market continues to grow. Profits from these efforts are being used to fund programming and the international expansion.
In their quarterly letter to company investors, Hastings and David Wells, Netflix's chief financial officer, said the growth of the company in new markets will unfold over the next few years as they improve their service. Their first task is to target "outward‐looking, affluent consumers" that own smartphones and international credit cards.
