Netflix stock went up briefly as much as 10% in after-hours trading today, to $US388, after its Q3 earnings report.
Here are the results:
Revenue: $US1.11 billion, up 22%, a narrow beat on the topline.
EPS: 52 cents, a big beat on the bottom line.
Subscriber adds: 1.29 million in the U.S., up 11%; 1.44 million foreign. That’s a massive beat in new customers.
It’s basically a huge validation of CEO Reed Hastings’ business model. The shows — House Of Cards and Orange Is The New Black — are top-notch. Games won an Emmy. He’s got more subscribers than HBO. The company is a real threat to the cable model. And now these numbers indicate Netflix is growing even faster than Wall Street thought it was.
Q4 guidance: 47-73 cents. Subscribers: 2.05 million net adds in the U.S.; 1.3 million net additions foreign.
Here’s the new guidance in a chart:
Here’s what analysts had been expecting:
- EPS: 49 cents
- Revenues: $US1.1 billion
- Subscriber metrics: per the Wall Street Journal, “The company is expected to add roughly 1.1 million U.S. subscribers, and 950,000 overseas. The would boost their total subscriber base to roughly 31 million in the U.S., and 9 million overseas.”
The movie-streaming company appears to be gearing up to position itself as yet another “channel” on your cable TV box. Netflix previously reported it has 30 million paying subscribers, according to Bloomberg, more than HBO. And it’s been added to Virgin Media subscribers’ boxes in the U.K.
Q3 was also the first full quarter in which its new series, “Orange is the New Black,” became available. That show — about a female prison — was a hit with viewers.
Highlights from the Q&A with Hastings and his team:
- He begins by cautioning that he’s seeing a lot of headlines about the stock, and says it’s getting a lot of momentum investing — which he disapproves of.
- Chromecast was not material to growth. Chromecast is the add-on “dongle” from Google that allows people to watch web video on their regular TV.
- Hastings is expecting 6 million net additions this year and next year, producing a consistent 400 basis point increase in margins.
- Hastings admits that he doesn’t know whether the content or improvement in technology is driving growth. But he says Netflix is getting better at advertising.
- Personal profiles, a new addition to the Netflix menu: We did about 5 billion hours of streaming in the last Q. Most of it comes from the initial setup screens. Says PP’s are for the hardcore users.
- Viewer behaviour: What is the attrition rate like? We get some confusing answers here — no specific numbers. There is attrition after the first 3 or 4 episodes. But the total audience builds over time as word gets out.
- 2014 original programming: Sense8, a sci-fi show, is on the way. As is Dreamworks animation deal.
- Writedowns. If a show is a flop, will there be w writedown? Not likely. Licence period is longer than the revenue recognition period.
- Breaking conventions in terms of releasing an entire season at once: Content chief Ted Sarandos says it’s harder than you’d think because you need the cast to rest between seasons.
- Movies: Will Netflix break into movie business? Sarandos: We are actively looking at documentaries to appear in Netflix.
- Sports like the NFL, will they come to Netflix? We’re still not interested in sports.
- It will not be a problem to get a Netflix button on a Comcast box.
- What’s holding back the broadband markets abroad? Hastings says they’ll be looking at expansions, Nordics and Netherlands.
- Not seeing a threat from Aeereo.
- Cord-cutting: “There is zero cord-cutting,” Hastings says. “Our market has not been the cord-cutter market.” No decline in MVPD households.
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