Netflix Inc. Just Wowed Its Subscribers: Will Wall Street Be Next?

By Markets Fool.com

Netflix treated its subscribers to a ton of fresh content over the last three months. The comedy The Interview hit the service on Jan. 24 -- just 30 days after debuting in movie theaters. Then there was the third season of House of Cards along with two brand new, exclusive original series: Bloodline and The Unbreakable Kimmy Schmidt. Hundreds of hours of fresh catalog content also rolled on to the service, led by all 10 seasons of the '90s hit TV show Friends.

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The Unbreakable Kimmy Schmidt. Source: Netflix

Netflix members happily lapped up all these new streaming choices. The company announced last week that it delivered 10 billion hours of programming in just the past three months:

It was Netflix's first update on that metric since it celebrated pumping 4 billion hours of content to homes over the same period two years ago. But does that huge engagement bounce tip off a surprisingly high membership gain when earnings results come out on April 15?

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Member growth expectations
CEO Reed Hastings and his team provided their internal projection for subscriber adds back in January. That forecast calls for an additional 2.25 million users in international markets and 1.8 million new customers in the United States.

Member growth 2014 Q1 Member growth 2015 Q1*
International 1.75 million 2.25 million
U.S. 2.25 million 1.80 million
Total 4.00 million 4.05 million

*2015 Q1 is management's forecast. Source: Netflix financial filing

There was a good news/bad news dynamic to that forecast. The bad news is that anything less than 2.25 million new users in the U.S. will mark the second straight quarter of slowing growth, confirming that Netflix is in fact reaching saturation in its biggest market.

On the other hand, additions are expected to be up on a worldwide basis. That would add heft to the claim that Netflix is a global growth story now, with a massive total addressable market to go after.

Let's get engaged
Since the overall subscriber base is growing, it doesn't tell us much that Netflix is delivering a record amount of content right now. The more important metric would be median hours, or the average amount of time each subscriber streams Netflix programming.

Source: Netflix

We know that number has also been setting records every quarter. Without giving hard figures, Hastings said in a recent conference call with investors that "median hours has continued to climb in every market as we make the programming better and better." That's important because the more engaged a user is, the more likely the user is to stick with the service and/or recommend it to a friend.

Foolish wrap up
There's no question that Netflix's service improved substantially in the first quarter and so median streaming hours likely hit another record. That's the reason why I'm expecting the company to post unusually strong membership growth over the last three months.

The 10 billion hours mark is a nice milestone for Netflix to celebrate. And while it doesn't tell us much about membership levels, it does confirm that the company's global growth strategy is charging ahead as planned. It also shows that Netflix's heavy bets on expensive original content are paying off exactly as management said they would.

Wall Street expects Netflix to post a 24% sales jump when it announces earnings results next week. Profit and free cash flow should drop, though, as it spends more on its international expansion and on original content launches. But those drawbacks appear to have quickly paid off by driving a solid jump in the global subscriber base.

The article Netflix Inc. Just Wowed Its Subscribers: Will Wall Street Be Next? originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Apple and Netflix. He has finished TheUnbreakableKimmy Schmidt and is almost done watching Bloodline.The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.