Credit: Netflix has raised its prices in order to support higher content spending. Image source: The Motley Fool.Just six months ago, Netflix (NASDAQ: NFLX) seemed to be facing a slowdown in its growth rate . Given that the company commands a very high earnings multiple, this caused skittish investors to dump the stock.
Netflix has raised its prices in order to support higher content spending. Image source: The Motley Fool.
Those headlines have since subsided, and customer retention remains strong despite the effective price increase that hit millions of subscribers last year.
As a result, Netflix is now benefiting from strong subscriber growth as well as rising average revenue per user. Total streaming revenue surged 41% year over year last quarter, driving solid margin improvement in both parts of Netflix's streaming business.
Profit growth on the way
Netflix is now on the verge of surpassing 50 million domestic subscribers and it is still adding 4 million to 5 million domestic users annually. That puts Netflix well on the way to reaching its long-term goal of attracting 60 million to 90 million domestic subscribers.
Netflix's international markets are growing even faster. By the end of 2017, Netflix will have more subscribers outside the United States than within it.
Even more importantly, Netflix expects its international segment to turn profitable for the first time ever in Q1. Management does expect international profitability to remain volatile because of the company's growth investments, but the trend is definitely pointing in the right direction after years of heavy losses. Meanwhile, the domestic streaming business continues to deliver strong profit growth.
The upshot is that Netflix is on track to generate a "material profit" in 2017, as management has been touting for the past two years. Going forward, as the domestic business expands further and the international segment gains scale, Netflix should be able to deliver strong earnings growth for many years to come.
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Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
