Netflix Q3 financial report is finally out, and guess what? Profits have actually exceeded analyst expectations giving the company’s stock a significant boost. The company has reported a 31% y-o-y jump in revenue with a figure of $5.24 Bn. This is along analyst expectations of $5.25 Bn, but with GAAP earnings of $1.47, Netflix has substantially exceeded analyst estimates of $1.05 per share.
In terms of user base, the company added 500,000 paid subscribers in US, which is less than its expectations of 800,000. However globally, there were 6.3 million net adds compared to a forecast of 6.2 million. The US growth is a worrying sign for Netflix, considering that it has only seen 2.1 million net additions domestically in the first nine months of 2019, compared to 4.1 million in the first three quarters of 2018.
Netflix believes this reduced growth could possibly be due to an increase in prices in the US, which conversely has also led to an increase in average revenue per user.
Since our US 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 US membership growth. On a member base of more than 60m, very small movements in churn can have a meaningful impact on paid net adds.
Overall, the company has reached the 158 Mn figure across the globe and it is expecting a few more million users in what’s left of 2019.
While we had previously expected 2019 paid net adds to be up year over year, our current forecast reflects several factors including 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.
Meanwhile, the company does not seem to be too worried at the prospect of rising competition, as almost every other company in the media business attempts to come out with a streaming service, from Disney to Apple.
Netflix is relying on its momentum and original content to stay ahead of the curve.
Our goal is to have the quality of our slate rival the ambition of its scope. An example is ’Orange is the New Black,’ which wrapped its final new season in Q3. The show was celebrated by fans and the media for the groundbreaking role it played for Netflix and the culture at large; Time Magazine said “Orange is the New Black’ is the most important TV show of the decade.”
