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Netflix Earnings: It's All About the Subscribers

By Danny Vena - Updated Oct 17, 2017 at 1:58PM

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Another quarter, another record-breaking performance for the streaming giant.

Video-streaming pioneer Netflix, Inc. (NFLX) has made a habit of blowing past its internal forecasts and the estimates of analysts, and this quarter was no different. The company produced record-setting subscriber additions for the just-completed third quarter as well as revenue that exceeded expectations.

Netflix has been making big bets on both original content and its international expansion, and those appear to be paying off. Continued strong subscriber growth shows that there's still plenty of interest in its slate of original programming, with international growth leading the way. Let's take a look at the numbers.

Netflix website featuring Stranger Things.

Shows like Stranger Things are a hit with subscribers. Image source: Netflix.

International growth is booming

Probably more than any other company, Netflix is judged on its ability to add subscribers, and it didn't disappoint this quarter. The company added 5.3 million new members worldwide, an increase of 49% over the prior year quarter, and 900,000 more than it forecast. Netflix now reaches a global audience of more than 109 million viewers. 

Global streaming revenue for the quarter was $2.985 billion, an increase of 33% year over year, exceeding Netflix own forecast of $2.969 billion, and also higher than the $2.97 billion average expectation of the analysts tracked by Yahoo! Finance. The company said this was the result of a 24% growth in paid memberships and 7% increase in the average price that subscribers pay each month.

Operating income jumped to $208 million, nearly doubling from the $106 million in the prior year quarter. Net income of $130 million missed Netflix own forecast of $143 million, but this was the result of a one-time pre-tax revaluation of euro bonds of $51 million (or $39 million when adjusted for taxes). The company also noted a $5 million excess tax benefit. Accounting for these one-time items, the company would have easily exceeded its goals.

Netflix also reported that its operating profit margin for the quarter was 7%, putting the company on track to achieve its goal of 7% for the full year.

What the future holds

Going forward, Netflix anticipates adding an additional 6.3 million subscribers in the fourth quarter, with 1.25 million in its domestic market and over 5 million internationally. This is lower than the more than 7 million subscribers the company added in the fourth quarter of 2016, as Netflix begins the implement its recently announced price hikes for domestic subscribers.

The cost of Netflix most popular plan, which includes HD and two concurrent streams, will increase by $1 from $9.99 to $10.99 for U.S. customers. The premium plan, which includes HD, Ultra HD and four concurrent streams will increase $2 from $11.99 to $13.99 per month. This pricing went into effect for new customers earlier this month and will be rolled out to existing customers over the next few months.

Additionally, the company said it would spend between $7 billion and $8 billion on content in 2018. Netflix credits its original programming for the continued strong customer growth worldwide, and made a point to mention its 20 wins from 92 nominations at this year's Primetime Emmys. Regarding its future opportunities, the company said in its third quarter shareholder letter:

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.

The saga continues

Netflix has continued to set the standard for video streaming and content creation and its investors have reaped the rewards of this strategy, with the stock up over 60% so far this year. While it would be unrealistic to expect that blistering pace to continue, the company continues to invest in initiatives that should keep new subscribers flocking to the service.

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