Netflix climbs 10% on international and earnings growth, despite missing subscriber targets for the second straight quarter

NetflixRyan Murphy’s ‘The Politician’ premiered on Netflix during the third quarter.
  • Netflix reported earnings for its third quarter on Oct. 16 after the markets closed.
  • The streaming company missed its forecasts for subscriber growth globally, but crushed its earnings projections and added more paid subscribers than it expected internationally.
  • Wall Street was looking for Netflix to rebuild investor confidence after the company missed its own forecasts for subscriber growth during the prior period.
  • The quarter is the streaming giant’s last full period before forthcoming rivals like Disney Plus and Apple TV Plus hit the market in November.
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Netflix shares are back on the rise, even after the company missed its forecasts for global subscriber growth during the third quarter.

The streaming giant crushed Wall Street’s earnings projections and added slightly more paid subscribers internationally than expected during the period.

Shares were up as much as 10% at $US317 in after hours trading on Wednesday, when the report was released. Previously, the company’s stock was down more than 20% from three months earlier.

Netflix was much more profitable than analysts expected during the third quarter. It posted earnings of $US1.47 per share, or $US665 million, compared to $US0.89 per share during the same period a year earlier.

Netflix added 6.8 million paid subscribers globally during the third quarter, in line with what Wall Street analysts estimated, but slightly below the company’s own forecast of 7 million.

Nearly 6.3 million of those new paid subscribers were international, above the 6 million Wall Street analysts projected.

But the company missed its subscriber targets in the US, its largest single market, after rolling out price hikes earlier in the year. The miss came after Netflix lost US subscribers for the first time since 2011 during the second quarter.

Starting next year, Netflix will stop giving guidance for the US as a region, the company said in its release. Instead, it will report based on four regions: US and Canada, Asia Pacific, Europe, and the Middle East and Africa. It will provide guidance only on global subscriber additions.

Some analysts, like Monness Crespi Hardt & Company’s Brian White, have been calling on Netflix to stop reporting and offering guidance on paid subscribers, because the data point is getting harder to predict now that Netflix has a large, established audience.

Ahead of the report, Wall Street had been bracing for a miss on subscriber growth, after Netflix posted, during the previous quarter, paid subscriber additions that were far below its forecasts.

Netflix blamed its bad second quarter, in part, on a content slate that failed to deliver. During the third quarter, it ramped up releases with new seasons of popular shows like “Stranger Things,” “La Casa de Papel (Money Heist),” and “Orange Is the New Black.”

The company lowered its subscriber guidance for 2019 to 26.7 million paid net additions, down from the 28.6 million additions it brought in last year, because of stiffer competition; upcoming original releases that may be harder to predict an audience for, like its boost in high-profile movies; and higher cancellations driven by price hikes.

The third quarter is Netflix’s last full period before a rush of new rivals hit the market, starting in November with Apple TV Plus and Disney Plus.

Here are the key numbers to watch in Netflix’s Q3 earnings:

  • Q3 revenue: $US5.25 billion, in line with Wall Street estimates and Netflix’s forecast.
  • Q3 earnings per share (GAAP): $US1.47, versus Wall Street estimates of $US1.05 and Netflix’s forecast of $US1.04.
  • Q3 total paid subscriber growth (paid net additions): 6.8 million, versus Wall Street estimates of 6.8 million and Netflix’s forecast of 7 million.

    • 517,000 in the US, versus Wall Street estimates of 798,360 and Netflix’s forecasts of 800,000.
    • 6.26 internationally, versus Wall Street estimates of 6 million and Netflix’s forecasts 6.2 million.
  • Q4 total paid subscriber growth estimate (paid net additions): 7.6 million, versus Wall Street estimates of 9.28 million, and 8.84 million in the fourth quarter of 2018.

    • 600,000 in the US.
    • 7 million internationally.

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