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4 Key Quotes From Netflix Inc.'s Third-Quarter Earnings Call

By Daniel Sparks – Oct 17, 2017 at 8:11AM

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Netflix management talks acquisitions, its biggest catalyst, price increases, and more.

With higher-than-expected subscriber and revenue growth in its third quarter, Netflix (NFLX 0.54%) shareholders have some new reasons to be happy with the company's strong growth story. But the quarter's key metrics from its earnings release represent only one side of the story. Management commentary from Netflix's third-quarter conference call gave investors a more nuanced look at Netflix's overall business and its prospects.

Here four of the most insightful quotes from Netflix's third-quarter earnings call (via an S&P Global Market Intelligence transcript).

Netflix streaming on multiple devices

Image source: Netflix.

How Netflix thinks of acquisitions

Netflix surprised investors in August when it made its first-ever acquisition of comic book publisher Millarworld. The acquisition may have raised some eyebrows, leading investors to question whether Netflix is opening up to a different growth strategy.

In its third-quarter conference call with analysts, management clarified its stance on acquisitions.

I think you can tell from our track record, we -- this is the first acquisition we've done in our 20-year history. So I think, from that, you can take that we have a very strong bias to build over buy. Secondly, we remain very,
very focused, so we're not looking to diversify into new businesses but rather looking opportunistically at intellectual property and other content assets that can help enhance our content library and also accelerate our growth.

In other words, Netflix's slant toward organic growth remains. But management does seem more open to making acquisitions that align directly with the company's current business.

Netflix's biggest catalyst

Don't look to the latest season of House of Cards, Narcos, or Stranger Things, when trying to put your finger on Netflix's most important growth driver. While blockbuster original content undoubtedly plays a crucial role in Netflix's overall growth trends, management is adamant that its biggest catalyst is simply the secular trend of internet television.

I've been pretty consistent in, quarter-after-quarter, the base force that really is the strongest force is the continued adoption of Internet TV and entertainment. And that tends to drive the lion's share of our net additions.

How Netflix approaches price increases

Netflix made headlines earlier this month when the company confirmed it plans to increase prices on some of its plans in the U.S. Management provided investors with some context for the price increase in its third-quarter conference call, noting that the company only raises prices when it believes consumers will be convinced that new prices still offer "great value" relative to the company's growing slate of content.

Price is all relative to value. We're continuing to increase the content offering, and we're seeing that reflected in viewing around the world. So we try to maintain that feeling the consumers have that we're a great value in terms of the amount of content we have relative to the prices.

Beginning in November, the monthly price of Netflix's standard service will increase from $9.99 to $10.99. And the monthly price of Netflix's premium tier will increase from $11.99 to $13.99.

Looking to 2018

When asked whether management is expecting a strong first half of 2018 even as competition ramps up, Netflix chief content officer Ted Sarandos responded, "Yes, definitely."

A screenshot showing a group of Netflix originals.

Netflix originals. Image source: Netflix.

Sarandos cited three key drivers beyond the ongoing adoption of internet television that should drive growth: the company's increased efforts in debuting big-budget original movies directly on Netflix, a growing slate of local language original production, and its "steady drumbeat of new original series...."

While Sarandos admitted that competition is increasing in internet television, he said Netflix is "really happy" with its results in this more competitive landscape.

Overall, the conference call reiterated the strong results in its earnings release. Netflix is firing on all cylinders.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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