Auto-playing trailers for Netflix shows will now be available on their mobile app too.
NETFLIX Inc exceeded expectations for adding subscribers during the third quarter, reporting strong user growth in international markets as it continues to invest heavily in its global programming offerings.
Shares of Netflix gained 12% in after-hours trading on the robust subscriber growth, after rising 4% to close at $346.40 amid a broader market rally Tuesday.
Maintaining a fast clip of subscriber additions is key to Netflix’s ability to cover its rapidly growing content costs. Netflix has said it expects to book content expenses of as much as $8 billion this year. Analysts estimate it will spend as much as $4 billion more on shows and movies this year that will be released in the future, bringing its total cash spent on content to some $12 billion, dwarfing rivals such as Amazon.com Inc. and HBO.
For the third quarter, Netflix added 6.96 million subscribers globally, beating the five million that the company forecast for the period in July and the 5.18 million analysts surveyed by FactSet predicted. The additions bring Netflix’s total global subscriber count to 137 million.
The better-than-expected user growth is likely to allay investor fears after the previous earnings report that Netflix’s momentum was slowing. Notably, even in the relatively mature U.S. market where growth at times has slowed year-over-year, Netflix vastly exceeded its guidance, adding 1.09 million domestic customers, compared with 850,000 subscribers in the year-earlier quarter.
Netflix said it plans to move away from reporting at quarter’s end how many subscribers had signed up for free trials. The company said it will focus on paid subscribers going forward, in part because the company’s internal forecasts for paid subscribers are more accurate than its forecasts for total subscribers including those on free trials.
Five years into its strategy to invest in original programming and move beyond licensing from rival media companies, Netflix said its internal studio is the single largest supplier of content to Netflix on a cash basis. As it rapidly expands its lineup of original shows and movies, the company said it would bring $1 billion in production over the next 10 years to a new production facility in Albuquerque, N.M., that will create as many as 1,000 production jobs a year.
In a letter to shareholders, Netflix said it is aware of looming competition from “massive” rivals such as AT&T Inc.’s WarnerMedia, Walt Disney Co. and Apple Inc., all of which have plans for subscription services offering premium original programming. “Our job is to make Netflix stand out so that when consumers have free time, they choose to spend it with our service,” the company said.
Netflix said that as it has created more diversified fare across countries and languages, it is finding that even its biggest hits are only a “low-single-digit” percentage of overall streaming hours. “Our growth in any one quarter is not attributable to any one piece of content,” the company wrote.
Still, the company is investing in areas such as romantic comedies, where it sees opportunity to take share from Hollywood. More than 80 million of its accounts have watched one or more of the romantic comedies it released this summer, which include “To All The Boys I’ve Loved Before.”
“We want to assure investors that we have the same high confidence in the underlying economics as our cash investments in the past,” the company said.
For the third quarter, Netflix reported a profit of $403 million, or 89 cents a share, compared with $129.6 million, or 29 cents a share, a year earlier. Analysts predicted 68 cents a share in earnings, according to FactSet.
Sales for the quarter rose 34% to $4 billion, in line with analyst estimates. International streaming revenue jumped 49% to $1.97 billion, while domestic sales increased 25% to $1.94 billion.
In the quarter, Netflix gained 5.9 million new subscribers overseas and 1.09 million in the U.S. The company had forecast gaining 4.35 million international subscribers and 650,000 domestic subscribers during the period.
The company said it expects to add a further 9.4 million subscribers during the fourth quarter, up 13% compared with the 8.3 million it added a year earlier. Analysts had predicted 8.25 million additional subscribers, according to FactSet. - WSJ
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