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In a good news bad news scenario that always gets Wall Street’s attention Netflix Inc. (NASDAQ:NFLXC) posted better than expected Q1 earnings but failed to add as many subscribers as the company hoped for. In addition, forward earnings guidance fell short of analyst forecasts.

The company posted EPS of 40 cents per share versus the 37 cents per share expected by Thomson Reuters. Additional domestic subscribers hit 1.42 million. FactSet expected 1.56 million.


Up Year-Over-Year

Overall results were up from a year ago when the company posted earnings of 6 cents per share on revenue of $1.96 billion. Netflix had expected, however, to add 5.2 million subscribers including 1.5 million domestically and 3.7 million internationally. In fact, the number of overall adds was 4.95 million.

Especially disappointing was the 22% year-over-year decrease in international subscriber additions. Subscriber growth matters to analysts since domestic growth signals the core market still has growth potential.

Burning Cash

To maintain dominance over rivals, Netflix has been burning through a lot of cash. This will translate to $2 billion negative free cash flow in 2017 according to the company. Netflix expects to spend $6 billion on content in 2017 and plans to produce 1,000 hours of premium original content in the process. Netflix content spending exceeds that of companies such as Amazon.com Inc. (NASDAQ:AMZNC) and CBS Corp. (NYSE:CBSC). Meanwhile even Apple Inc. (NASDAQ:AAPLC) has thrown its hat in the original content ring.

Wall Street has noted that Netflix isn’t spending on content alone. The company will spend more than $1 billion in 2017 on marketing. Streaming content spending is up to $15.3 billion versus $12.3 billion a year ago.

No Sports For Netflix

One thing Netflix is not spending on is sports. Responding to Amazon’s plans to stream Thursday night NFL games Netflix said, "That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows."

Some observers see NFL programming as better suited to Amazon since the company could turn streaming content in potential merchandise sales through its online store. Netflix lacks that capability. Netflix also dismissed the streaming “cable-TV-like” packages offered by Sony Corp (NYSE:SNEC), DISH Network Corp. (NASDAQ:DISHC), AT&T Inc. (NYSE:TC) and Hulu.


The Net Neutrality Battle

Meanwhile Netflix has joined some competitors including Alphabet Inc. (NASDAQ:GOOGC), Amazon, Facebook Inc. (NASDAQ:FBC) and others lobbying the FCC to preserve the Open Internet rules put in place under President Obama.

The FCC Open Internet order, adopted in 2015 under the Obama administration, prohibits internet service providers from blocking legal content, throttling traffic or selling "fast lanes" that give priority to some types of traffic over others.

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