Netflix, the company behind video-streaming sensations from "Stranger Things" to "The Crown," will boost promotional spending by 53 percent this year while battling President Trump's administration to restore net neutrality rules.
The rules, implemented by the Federal Communications Commission under former President Barack Obama, barred Internet service providers from adjusting rates or transmission speeds based on content or discriminating against individual sites. They were rolled back by the panel on a 3-2 vote late last year, with Chairman Ajit Pai, a Trump appointee, arguing the move would restore successful "light-touch regulation" that predated Obama and encouraged investment in broadband services.
Netflix demurred, joining the Internet Association lobbying group in fighting the decision, which streaming services worry could make their products more expensive for consumers. "A strong Internet should have enforceable net neutrality rules," the Los Gatos, Calif.-based company said in its fourth-quarter earnings report on Monday.
After streaming hours per customer grew an average 9 percent in the last three months of 2017 amid a simultaneous increase in membership, the company says it will invest $7.5 billion to $8 billion in new content this year and spend as much as $2 billion on marketing.
"Our thing is working," CEO and co-founder Reed Hastings told investors on a YouTube webcast. "What we have to do is not get distracted. We have to do content at a scale very few people have ever done before. We have to do marketing and product at that. If we do that, the rewards should be very solid for us."
The company's profit of 41 cents a share in the three months through December matched the average estimate from analysts surveyed by FactSet, and net income nearly tripled to $185.5 million on sales of $3.29 billion. Paid memberships climbed 24 percent in 2017 and may rise another 7 percent in the first three months of this year, the company said.
So-called net adds, the number of new subscribers after subtracting customers who dropped service, reached 8.3 million in the three months through December, higher than Netflix projected and in line with an estimate from Deutsche Bank analyst Bryan Kraft. The company attributed the growth to its original content slate combined with wider global adoption of video-streaming services.
Netflix's success in the coming year will turn on subscriber growth, Stephen Ju, an analyst with Credit Suisse, said in a note to clients on Tuesday. After net gains climbed 18 percent to 21.5 million last year, Netflix may add 26 million in 2018, he estimated.
"The upside in subscriber growth is offset by an increased commitment on marketing spend for not only the traditional customer acquisitions but also, apparently, customer retention," said Ju, who has a neutral rating on the stock.
Netflix surged 10 percent to $250.84 in New York trading on Tuesday afternoon. The shares previously advanced 64 percent in the past 12 months, a gain twice as large as the broader S&P 500.