1Q18 Takeaways
- Accelerated marketing may be driving sub strength: NFLX beat Int'l sub estimates on both its 1Q results and 2Q guide. The 1Q beat came on the heels of a sharp acceleration in Int'l marketing spend. NFLX's Int'l SAC increased modestly on a y/y basis, but hit a historical high on a 2-yr basis. On the US side, marketing expense grew by 98% y/y, which we estimate is a historical high. US SAC decelerated y/y, but accelerated on a 2-yr basis.
- Cash contribution profit solidly positive: We model NFLX on a cash basis (vs. amortization basis) since its cash content outlays profile more as recurring operating expenses given NFLX's accelerated content amortization. Cash contribution profit hit its highest level since 2014 despite both accelerating cash content expenditures and marketing spend, reversing what has been a largely stagnant trend dating back to 2015.
- Streaming obligations decelerating, but less indicative: NFLX's total streaming obligations grew only 17% y/y in 1Q18; it's slowest growth since 3Q15. While encouraging, remember NFLX's streaming obligations have never been indicative of what it will actually spend. Further, as NFLX pursues more original content, its streaming obligations will be even less indicative of its future cash outlays, so we're not reading too much into the slowdown.
Let us know if you have any questions or would like to discuss in more detail.
