Financial Performance

Netflix Posts Big Rebound in Subscriber Growth

The streaming giant's strong Q3 “serves as a comeback after it failed to meet its own performance predictions in Q2."
Matthew HellerOctober 17, 2018

Netflix shares jumped nearly 11% in extended trading Tuesday after it reported subscriber growth that crushed estimates, with particularly large gains overseas.

In the third quarter, the streaming giant added 6.96 million new subscribers, topping the 5.3 million new subscribers it added this time last year and the roughly 5 million expected by analysts.

Domestic subscriber growth was 1.09 million, compared to estimates of 673,800, while international subscriber additions totaled 5.87 million, versus estimates of 4.46 million.

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As USA Today reports, Netflix’s third quarter “serves as a comeback after it failed to meet its own performance predictions in Q2 (falling short of its 1.2 million subscriber target) that sent its stock plunging.”

In Tuesday’s extended session, Netflix stock rose 10.9% to $37.70. “One of the big questions after they missed the earnings and membership numbers in Q2 was whether it was just an aberration or a sign of weakening business,” Forrester principal analyst Jim Nail said. “These numbers show that it was clearly an aberration.”

Netflix also reported that net income for the third quarter rose to $403 million, or 89 cents a share, from $129.6 million, or 29 cents a share, in the same quarter a year ago. Revenue increased 25% to $4 billion.

Analysts had expected earnings of 68 cents a share on revenue of $3.99 billion.

But the company warned that the costs of developing original content will take a bite out of its profit at the end of the year. It said operating margin would decline from 12% of revenue in the just-completed quarter to 4.9% in the holiday period.

Netflix’s fourth-quarter original-content roster includes the final season of “House of Cards” and the debut of “The Chilling Adventures of Sabrina,” based on the Archie Comics character Sabrina the Teenage Witch. It plans to continue its aggressive spending on original content, estimating that free cash flow will be around negative $3 billion for 2018.

Netflix is “approaching where the growth in operating profit is going to grow faster than our growth in content cash spend,” CFO David Wells told analysts during the earnings call.

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