Netflix Blows Past Consensus With 7 Million New Subscribers In Q3

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Netflix reported third-quarter results above expectations. The company added a total of 6.07 million new subscribers in the quarter, including 1.00 million in the US, for a total of 130 million worldwide. The results sent the company’s share price up 13 per cent in after-hours trading. 

Revenues rose 34 percent to USD 4.00 billion, keeping growth at a high level. Contribution profit increased 70 percent to USD 1.15 billion, and the margin was at 28.8 percent, close to its record of three years ago. The US contributed 48 percent of revenue and 66 percent of the profit. The original DVD business still accounted for 2.2 percent of revenue and 4.5 percent of profit.

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Operating cash flow fell to a new low point of negative USD 690 million after Netflix spent a record USD 3.17 billion cash on content. This reduced the company’s cash position by USD 835 million to USD 3.08 billion at the end of September.

Netflix increased its guidance slightly. Free cash flow over the full year will be on the better end of the earlier forecast range of minus USD 3-4 billion.

In the accompanying letter to shareholders, Netflix provided few additional details, focusing on the importance of its original productions and its extensive content offer. The company was little concerned with the recent quota for local production agreed in the EU, but said this could affect viewing behaviour negatively. Netflix also added two new distribution agreements, with KDDI in Japan and Verizon in the US.

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From next quarter, Netflix will stop issuing guidance on customer numbers, and in a year, stop reporting those numbers. The reason is the number of customers on trial subscriptions, which is a poor indicator of who will become a paid subscriber. That was especially the case in the previous quarter when results came in below expectations.

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