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Why Netflix Inc. Stock Jumped 10% Higher Today

By Anders Bylund – Apr 17, 2018 at 2:22PM

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The streaming video veteran added more new subscribers than expected, mostly overseas. That's exactly what investors wanted to see.

What happened

Netflix (NFLX -4.49%) shares are on fire today, thanks to another strong earnings report. As of 1:45 p.m. EDT, the stock is trading 9.9% above Monday's closing prices. These are fresh all-time highs.

So what

In the first quarter of 2018, Netflix saw top-line sales rising 50% year over year to land at $3.7 billion. On the bottom line, earnings increased by 60% to $0.64 per share. These results were right in line with management's guidance and with Wall Street's consensus estimates.

But the streaming-video giant also added 1.96 million net new subscribers in the U.S., alongside 5.46 million international additions. Those results were a good 17% ahead of management's guidance targets, and investors took this outperformance to heart -- as expected.

Screen with the words "Netflix: See what's next."

Image source: Netflix.

Now what

This has been the Netflix strategy since the very beginning: Keep adding subscribers as quickly as possible, then reap the rewards of healthier subscription revenues for years to come. The company is running with the pedal to the metal at the moment, chasing all kinds of international growth since expanding into every market that matters (except for China) in early 2016.

The no-holds-barred growth spurt is costing Netflix a lot of money right now, being fueled by a cash-intensive strategy of making lots of exclusive original content that should keep audiences coming back for seconds, thirds, and more. Netflix may burn as much as $4 billion of free cash in 2018, and remains several years away from that magical moment when the cash flows turn positive again.

Not much has changed for us Netflix investors over the last decade or so, except that the scale of the company's business and success is increasing. The strategy remains the same, and it keeps unlocking more and more shareholder value.

Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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