Netflix Reports Higher Third-Quarter Earnings

Global subscribers rise to 158.3 million
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Netflix reported higher third quarter income as it increased global subscribers by 22% to 158.3 million.

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Net income rose to $665 million, or $1.47 a share. Compared to $403 million, or 89 cents a year ago.

Revenue rose to $5.2 billion from $4 billion a year ago.

The numbers exceeded forecasts on Wall Street, where investors were worried about the new streaming competition Netflix will be facing from Disney and Apple this year and AT&T and Comcast next year.

Related: Netflix Snags Global Streaming Rights to 'Seinfeld' Starting in 2021

"Netflix’s subscriber growth got back on track in Q3, as we anticipated, with 6.8 million paid new additions," said Neil Begley, senior VP at Moody's. "Our long range forecast for the company remains unchanged: reaching 200 million subscribers by 2021, with an outside chance of reaching that number in late 2020, and continued margin improvement until the company achieves break-even free cash flow in 2023, when margins reach the mid 20% range."

In the U.S., Netflix added about 500,000 subscribers, below the 800,000 it had forecast.

“Since our U.S. price increase earlier this year, retention has not yet fully returned on a sustained basis to pre-price-change levels, which has led to slower U.S. membership growth,” the company said in its letter to shareholders.

The company added that revenue growth has been accelerating and ARPU increased.

“With more revenue, we’ll continue to invest to improve our service to further strengthen our value proposition."

International subscriptions increased more than forecast. The company added 6.3 million subscribers, up 32% from a year ago and more than the 6.2 million it had forecast.

For the fourth quarter, Netflix expects to add another 7.6 million subscribers. It sees net income of $232 million or .51 cents a share, up from $134 million , or .30 cents a share a year ago.

The additional 7.6 million subscribers Netflix now expects for 2019 is less than it added last year.

“While we had previously expected 2019 paid net adds to be up year over year, our current forecast reflects less precision in our ability to forecast the impact of our Q4 content slate, which consists of several new big IP launches (as opposed to returning seasons), the minor elevated churn in response to some price changes, and new forthcoming competition,” the company said. “As we outline in more detail below, our long-term outlook on our business is unchanged.”

The company acknowledged that new competitors will have an impact on its business. "The launch of these new services will be noisy. There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance," Netflix said. "In the long-term, though, we expect we’ll continue to grow nicely given the strength of our service and the large market opportunity. "

With more competition on the way, Netflix noted that it is moving increasingly to original content because competitors’ studios have been pulling back content, such as the popular series Friends and The Office. But Netflix added that its own original content is working in terms of member viewing and engagement. Season 3 of Stranger Things was watched in 64 million households during its first four weeks--its most watched season to date, the company said.

Netflix said it is expanding its non-English language originals because they’re growing the company’s penetration in international markets. It said it is also investing aggressively in original films, noting that Secret Obsession was watched by 40 million households, Otherhood was watched by 29 million households and Tall Girl was seen by 41 million households in the first 28 days it was available.

Netflix said that in 2019 it will spend $15 billion on a cash basis on content.

“With so many firms now looking to provide premium video content to consumers, it’s a great time to be a creator of content. Amazing content can be expensive. We don’t shy away from taking bold swings if we think the business impact will also be amazing. We don’t close every deal we chase and we don’t chase every deal on the table,” the company said. “And while not all projects that we do pursue will work out, our large and growing subscription base helps enable us to try many approaches.”

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