Remember when streaming-TV company Netflix (NFLX +0.96%) worried investors just a few months ago with its worse-than-expected member growth? Well, it turns out that concern was more of a short-term blip than early signs of an underlying problem; Netflix just crushed its member growth guidance by more than the amount by which it missed its forecast in the previous quarter.
Netflix's better-than-expected member growth helped drive impressive results across the board in the third quarter, including guidance-beating revenue growth, operating margin, and earnings per share. Here's a look at some of the biggest highlights from the quarter.
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1. 7 million new members
During its third quarter, Netflix added about seven million net members. The big increase in members, which brought total members to 137 million, sent Netflix stock soaring.
Not only was this a big jump from Netflix's approximately 5.2 million net member additions in Q2, but it was up hugely from the 5.3 million members the streaming-TV company added in the year-ago quarter. In addition, Netflix's seven million net member additions represented a new third-quarter record.
Netflix's better-than-forecast member growth was fueled by outperformance both in the U.S. and abroad. In the U.S., Netflix added 1.09 million members -- above a forecast for 650,000 net member additions. But Netflix's member growth abroad was particularly strong. International net member additions were 5.87 million -- crushing a forecast for 4.36 million.
2. 34% revenue growth
With such strong growth in members, Netflix's revenue also outperformed the company's guidance. Third-quarter revenue was about $4 billion, above management's forecast for $3.99 billion. This translated to an impressive 34% year-over-year revenue growth rate. This was a deceleration from Netflix's 40% revenue growth in Q2 but higher than its 30% growth in the year-ago quarter.
This revenue growth was driven by a 25% year-over-year increase in paid memberships and an 8% rise in average subscription prices, management said in its third-quarter shareholder letter.
3. 12% operating margin
Netflix's operating margin soared 500 basis points year over year to 12%, beating management's forecast for an operating margin of 11.8%. The wider-than-expected margin was primarily "due to the timing of content and marketing spend, a portion of which moved into Q4," management said in Netflix's third-quarter letter to shareholders.
Because of management's plan for big content spending and a higher mix of original films in Q4, the company expects its operating margin to temporarily dip to lower levels in the final quarter of the year. Management guided for a fourth-quarter operating margin of 4%, down from a 7.5% operating margin in the fourth quarter of 2017. "We would have preferred our operating margin to have been a little steadier over the course of the year, and we will target a little less quarterly variance next year in our progress to our full-year target of 13% (assuming no major [foreign exchange] moves)."
4. 207% earnings-per-share growth
Of course, all of this strong performance translated to better-than-expected earnings per share of $0.89, crushing management's guidance for earnings per share of $0.68. Earnings per share climbed 207% year over year.
