Netflix demonstrated that its second-quarter miss was an anomaly, reporting record third quarter subscriber growth.
The company added 7 million subscribers in the September, exceeding its conservative forecast for 5 million net additions to the service in the third quarter. Netflix added 1.09 million subscribers in the U.S., and 5.87 million internationally, bringing the total number of subscribers to 137 million.
Netflix reported earnings of 89 cents a share, topping analysts’ consensus estimates of 68 cents a share. Streaming revenue surged 36%, reaching nearly $4 billion in the quarter — a performance that matched Wall Street’s forecasts of $4 billion.
Investors reacted strongly to Netflix’s results, driving the stock up nearly 12% to $388.49 in after-hours trading.
Wall Street’s confidence took a hit after Netflix reported disappointing subscriber gains this spring, with the stock falling sharply in the next day’s trading. At the time, one analyst called the miss a “gut punch.”
“After handily blowing away Street expectations on subs in the last few years, this is a clear speed bump for Netflix as the international miss was most concerning, given this is the linchpin to the core growth thesis for the coming years,” GBH Insights technology analyst Daniel Ives said at the time, suggesting a “speed bump” rather than the start of a negative trend.
Ahead of the earnings report, Cowen & Co. technology analyst John Blackledge was upbeat.
“We expect solid 3Q18 results, led in part by Netflix adding a record number of Originals programming hours,” Blackledge wrote. “Our US survey data suggests Netflix maintains its lead in the living room, particularly among younger demos.”
CEO Reed Hastings told investors, in a letter, that the company expects to add 7.6 million paid subscribers in its fourth quarter, though its operating margin would tighten because of the higher mix of films at year’s end. He also said the company would begin reporting only paid memberships — a number that he said Netflix has been able to forecast more accurately — starting in January.
Hastings talked about Netflix’s emphasis on original content, which reduces its reliance on outside studios, gives it greater control over distribution and strengthens the band’s association with content people love. As the company expands its capabilities internally, it found it needed more production capacity — leading to the acquisition of a studio in Albuquerque, New Mexico.
The Netflix executive highlighted the streaming service’s varied content palate, with the addition of new animated adult comedies — Disenchantment, from Matt Groening, creator of The Simpsons and Futurama, and Paradise PD, from the makers of Brickleberry, to complement Big Mouth, Bojack Horseman and F is for Family — and its popular romantic comedies, including To All the Boys I’ve Loved Before, one of the service’s most-viewed original films with strong repeat viewing.
“More than 80 million accounts have watched one or more of the Summer of Love films globally and we are already in production for the next set of original rom-coms for our members,” Hastings wrote.
This December, Netflix premieres ROMA, from Oscar-winning director Alfonso Cuarón, which will debut simultaneously on the service and on over 100 screens worldwide.
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