What happened
Week to date, shares of Netflix (NFLX 0.54%) were up more than 24% as of 12:17 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence. The streaming leader posted its first quarter of subscriber growth since the fourth quarter of last year.
After the company posted a surprise subscriber loss in the first quarter, the stock hit a 52-week low of $162 in May. The stock has recovered sharply off those lows, trading at $286 at the time of writing. Year to date, the stock is still down 52%, but market sentiment has completely changed for the better in the last week.
So what
Netflix delivered paid net subscriber additions of 2.41 million, beating management's guidance of 1 million. With a full slate of new releases hitting the service over the last few months, management bragged that it had the highest engagement compared to other streaming services in the quarter.
Netflix had more than double the viewing time of Amazon and Disney in the U.K., according to BARB, and 1.4 times the viewing time of Disney in the U.S., according to Nielsen's Gauge.
What's most impressive is that Netflix continues to beat the competition while reporting solid profitability. The company generated $472 million of free cash flow in the quarter, with an operating profit margin of 19.3%. Again, management boasted that it is the only streaming service reporting a profit, which is something investors should note well.
Now what
Revenue is expected to be under pressure in the fourth quarter due to the strengthening U.S. dollar, but on a constant-currency basis, management still expects revenue to be up 9% year over year.
Paid net subscriber additions should be 4.5 million, according to management's forecast, compared to 8.3 million in the year-ago quarter.
Overall, Netflix is regaining momentum just in time to launch its budget-friendly ad-supported subscription plan next month. Over the long term, management still believes the company can deliver double-digit annualized revenue growth and grow profits even faster.
