Netflix's 3Q subscriber growth gets rave reviews on Wall St.

Darnell Taylor
October 20, 2018

Subscriber growth has always been more important to investor perceptions of Netflix than its relatively small profits.

The streaming Company also reported third-quarter profits of $US403 million, or 89 cents a share, compared with $US129.6 million, or 29 cents a share, a year earlier.

In a letter to investors, Netflix said that the company recognizes making "huge cash investments in content" and assures them [investors] of having "high confidence" in the fundamental economics, which is required to remain profitable. Netflix shares have risen more than 70 percent so far this year.

"We'll take it at a million at a time", CEO Reed Hastings told a post-earnings interview of subscriber growth in India, which Netflix declines to break out, citing competitive factors. The stock has a market cap of $162.92 billion, a P/E ratio of 277.12, a price-to-earnings-growth ratio of 4.67 and a beta of 0.89. The latest additions bring to 137.1 million Netflix's global subscription tally. Nearly all Amazon Prime members are believed to use the company's streaming media service.

Sales for the quarter rose 36 per cent from a year ago to $US3.91 billion, less than the almost $US4 billion analysts expected.

Netflix has spent aggressively to develop original content to lure new subscribers despite tough competition from services offered by Amazon and other outlets.

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As Netflix's third-quarter outcomes portrayed it is faring well in other arenas.

The streaming superpower, which hit its $4bn (£3.03bn) revenue estimate, was under pressure to up subscriber growth after falling short of expectations in the previous quarter. If the stock keeps rising over the coming weeks, it would underscore that investors still have a strong appetite for riskier companies, an attitude that might spill over into other technology firms. Those markets boosted Netflix again in the third quarter, contributing 5.87 million new customers.

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

Ahead of the Q3 earnings print, Netflix had seen its shares drop close to 12% over the past five days, albeit part of a much broader sell-off led by tech stocks. The streaming service's May 2027 euro bond surged to a three-month high on Wednesday, according to data compiled by Bloomberg. For the record Netflix produced shows had over 112 Emmy nominations, and 23 wins (a tie with HBO for the most).

Netflix said it expects to book content expenses of up to $US8 billion this year. During the same period a year ago, the company earned $0.29 earnings per share.

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