Netflix adds more subscribers than expected

NFLX EPS Estimates for Current Quarter data by YCharts

NFLX EPS Estimates for Current Quarter data by YCharts

Earnings obliterated Wall Street predictions as well, coming in at 89 cents a share-21 cents above the estimate.

Shares have surged more than two-thirds this year and closed on Tuesday at $346.40 in NY, valuing the company at nearly $154bn.

"It was a surprisingly good quarter that caught a lot of the financial community off guard", said Jim Nail, a senior analyst at Forrester Research.

Those stellar numbers sent shares of Netflix up more than 11 percent in after-market trading, to $386.11. Q4 is usually the most lucrative time for Netflix in terms of growth and revenue and there's no reason to see why this year will be any different.

Not only does this mean there will be yet another streaming service for increasingly frazzled television consumers to keep track of, but that older Warner Bros films and television series, ranging from the Harry Potter films to the Looney Tunes cartoons to the beloved Friends, will be yanked off services such as Netflix.

Netflix has upended the economics of pay TV by offering customers thousands of programmes on-demand for a monthly fee that's a fraction of the cost of a multichannel cable or satellite package.

That paid off in terms of new subscribers.

Not only did Netflix tops its projections for subscriber growth in the third quarter, it issued an optimistic outlook for the last three months of the year.

The company exceeded forecasts in both US and worldwide markets.

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Analysts from US financial group Keybanc downgraded their rating on Netflix to "sector weight" from "overweight", questioning whether the company was capable of improving investment returns and margins in years to come. Netflix doesn't break out its users by market, with the exception of the US, though most analysts agree that the U.K., Brazil, Canada and Mexico rank among the company's largest.

App analytics provider Sensor Tower pointed to the signs of increased growth that the market has grown accustomed to, with Q3 earnings from in-app subscriptions rising by over 90% YOY thanks to some 50 million new installations.

"We feel like we have a long, long runway ahead of us in India", Greg Peters, chief product officer, said in a post-earnings video interview. The company anticipates adding another 9.4 million subscribers during the fourth quarter, up 13% compared with the 8.3 million it added a year ago.

Netflix has spent almost $7 billion on programming through the first nine months of the year, and plans to boost its investment in the years to come.

Netflix has been borrowing heavily to fund such rapid growth in TV shows and movies.

Most analysts blamed Netflix's disappointing second quarter on a light programming slate. While the service released 452 hours of new work, according to a report from Cowen & Co., the lineup didn't include new seasons of any top shows. The company had previously projected $3 billion to minus $4 billion.

The firm plans to spend as much as $8bn on content this year, with more than a quarter devoted to original programming.

"It'll probably still be the case that they're going to stick to raising debt twice a year", he said. By the end of the year, Netflix expects to expand that base to 146.5 million.

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