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Netflix Adds 5.3 Million Subs, Stock at All-Time High

16 Oct, 2017 By: Erik Gruenwedel

Netflix Oct. 16 said it gained a ecord 5.3 million subscribers worldwide in the third quarter (ended Sept. 30), including 850,000 domestically and 4.45 million internationally — both tallies exceeding market expectations. The service ended the period with more than 104 million paid subs (109 million total). That compared with 83 million paid (86 million total) during the previous-year period. 

In the shareholder letter, CEO Reed Hastings and CFO David Wells said the SVOD pioneer was on track to top $11 billion in revenue in 2017. Netflix ended the period with a whopping $17 billion in streaming content obligations — up $2.6 billion from the previous-year period. The service plans to spend $7 billion to $8 billion on original content in 2018.

“Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes,” Hastings and Wells wrote.

The letter underscored third-party data indicating original scripted TV programming is declining across broadcast, premium and basic pay-TV, while increasing among SVOD services, including Amazon Prime Video and Hulu.

Meanwhile, Netflix has increased bundling efforts with pay-TV and ISPs in Europe, including SFR/Altice in France, Proximus in Belgium and T-Mobile in the United States.

“It’s an exciting period and both media and technology companies see the same big opportunity as we do. We have a good head start but our job is to improve Netflix as rapidly as possible to please our members by earning their viewing time and to stay ahead of the competition in the decades to come,” Hastings and Wells wrote.

Net income reached $130 million on revenue of $2.98 billion, compared with income of $52 million on revenue of $2.29 billion a year ago.

While most companies might panic reporting negative free cash flow of $465 million, the tally is actually an improvement from negative free cash flow of $506 million a year ago. The service is on track to generate upwards of $2.5 billion negative free cash flow this year.

Hastings and his team shrugged off the negative free cash as a cost of doing business, including growing content spending on original content.

“We pay for the titles before consumers enjoy the content, and the asset is amortized by estimated viewing over time. We anticipate financing our capital needs in the debt market as our after-tax cost of debt is lower than our cost of equity,” they wrote.

Netflix’s legacy by-mail disc rental service generated $63 million in contribution profit on revenue of $110 million. That compared to contribution profit of $68.7 million and revenue of $132.3 million a year ago. The service ended the period with 3.52 million subs, compared with 3.56 million a year ago.

The results sent share prices past the $200 for the first time. The stock closed Oct. 16 at a record $202.68 per share, with aftermarket trading sending them higher.


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