Netflix, an international expansion model, has won more than 38 million subscribers in 2018

The crazy race ahead of Netflix continues. While the market is about to enter a turbulent zone with the announced arrival in 2019 of several major competitors (Disney, NBC Universal, Apple in particular), the financial results of the fourth quarter of 2018, published Thursday, January 17 in the evening, show that Netflix continues to amplify its lead at a breakneck pace.

38 million new subscribers in one year

Overall, the company has shown very strong results. The firm led by Reed Hastings has 139.3 million subscribers, an increase of 25.9% year on year. In detail, the platform gained 8.8 million new subscribers in the last three months of the year, bucking the analysts' optimistic predictions, which stood at 7.5 million.

Among these recruits, 7.8 million are outside the United States, which confirms two things: Netflix does not really have room for maneuver in its domestic market, which already dominates the head and shoulders. But its international growth strategy, thanks to massive investments in original content, particularly in Europe, is bearing fruit. Netflix, for example, went from 57.8 million subscribers to 88.1 million subscribers outside the United States (+30.3 million), while its progression was significantly lower (52.8%). 60.1 million subscribers, or +7.3 million).

Growth largely driven by the international

Sign that its American conquest is over, Netflix has just announced its largest price increase in the United States. The basic offer will go from $ 7.99 to $ 8.99 and its most complete offer, which allows to watch four screens at a time in very high definition, will cost $ 15.99, instead of $ 13.99 dollars. A way for Netflix to support the cost of its original content, more and more numerous, in a context where competition is still weak, so with little risk of massive customer leakage.

The changeover from business to international is also verified in the income column. Until 2017, Netflix achieved more revenue in the United States than in the rest of the world. In 2018, the situation reversed. If the US market remains more profitable than the international market (the margin on variable cost is 34.2% in the United States in the last quarter of 2018, against 9.8% internationally), the turnover abroad reached 2.35 billion dollars, against 2.06 billion for the United States. In total, the company posted an increase in revenues of 27%, to 4.82 billion dollars, only slightly less than predictions of Wall Street.

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Debt widens, operating margin shrinks, but markets remain confident

In fact, the company's operating margin, which measures its viability, dropped to 5.2% in the fourth quarter from 7.5% a year earlier and 12% in the third quarter, "because of the large number of titles launched during the quarter", Netflix justifies adding however that the rate of 10% of the operating margin for the whole year is in line with its expectations.

"Our multi-year plan is to continue to significantly increase our offer while growing our turnover faster to achieve our operating margin," says the company, which wants to return to 9% in the first quarter and 13% for the full year 2019.

More worrying, but in line with his predictions, Netflix is ​​digging up its debt dramatically. In the fourth quarter, the company burned $ 1.24 billion, almost as much as the total of the first three quarters combined ($ 1.45 billion), due to many titles released in the fall and for the holidays of Christmas.

Read also: Netflix digs debt, but it's not a problem for Morgan Stanley

Even though Netflix is ​​financing its aggressive debt strategy rather than relying on its income, the company is bleeding hard and has announced that its debt will not go down in 2019. But the markets are not panicking. The title has lost only 4% on the stock market following the publication of the results, a decline that must be put into perspective since the Netflix share has earned more than 100 dollars since Christmas.

This confidence can be explained by the validation by experts and markets of Netflix's long-term strategy: the company is now investing heavily in its original content, but the return on investment is traditionally very long for films and films. series. Moreover, this aggressiveness aims to depend less on the content of the studios, which will eventually leave its catalog with the intensification of competition. For example, investment bank Morgan Stanley estimates that Netflix will make its programs profitable enough by 2021, and should generate solid profits thereafter.