Netflix's Blowout Earnings Show Its Huge Bet on Original Content Is Paying Off
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Version 0 of 1. Netflix (NFLX) has long been a polarizing company, and few things have been more polarizing about it than the many billions the streaming giant has chosen to invest in original programming to differentiate its services. On Monday afternoon, the company did a lot to validate those bulls who have defended its heavy-spending ways. In its third-quarter report, Netflix disclosed its streaming subscriber base grew by 3.57 million sequentially to 86.7 million (83.28 million paid, the rest on free trials), easily topping guidance for 2.3 million net subscriber adds. U.S. subscribers grew by 370,000 (above guidance of 300,000) to 47.5 million; international subscribers grew by 3.2 million (above guidance of 2 million) to 39.25 million. On an annual basis, the subscriber base grew by 25%. In addition, Netflix guided for 5.2 million net adds in the fourth quarter -- 1.45 million in the U.S., 3.75 million elsewhere. That's down a bit from the 5.59 million achieved in last year's strong fourth quarter, but still better than expected and good for 23% annual growth. Shares spiked after-hours and are up 17.4% in pre-market trading Tuesday to about $117 thanks to the numbers, hitting their highest levels since last December. It's all quite the change of pace from July, when Netflix plunged due to disappointing second-quarter subscriber adds and third-quarter guidance. For those curious, Netflix also reported revenue of $2.29 billion (up 32% annually) and EPS of 12 cents, topping consensus analyst estimates of $2.28 billion and 6 cents. And fourth-quarter EPS guidance of 13 cents is above a 7-cent consensus. But it's the subscriber figures that are once more taking center stage. The diminishing impact of the price hikes Netflix imposed earlier this year on existing users boosted subscriber growth, as did continued momentum for the international launches seen in January -- Netflix expanded into 130 new markets that month, including India, Russia, Turkey and Vietnam. But Netflix specifically singled out "the [subscriber] acquisition impact of our originals" as being responsible for its better-than-expected international growth, which drove most of the third-quarter subscriber beat. |