Netflix Again Surpasses Subscriber Growth Estimates
October 16 2017 - 5:11PM
Dow Jones News
By Austen Hufford
Netflix Inc. continued to exceed its subscriber-growth
estimates, both at home and abroad, as the company said it expects
to spend even more on original programming next year to help lure
viewers amid an increasingly competitive streaming market.
The Los Gatos, Calif., company ended its third quarter with 104
million paid streaming subscribers globally. It added 5.3 million
streaming users in total, outpacing the 4.4 million it had
projected.
Netflix has been pouring money into original programs such as
"Stranger Things" and "The Crown" to fend off competition from
other streaming services and continue to attract new subscribers
around the world. The company now says it plans to spend $7 billion
to $8 billion on content next year, far outstripping the
investments expected from rivals Hulu, Amazon.com Inc. and HBO.
Earlier this month, the company said it would raise prices for
its U.S. streaming-video customers, betting that subscribers will
tolerate higher monthly fees and help fuel the company's big
investments in TV shows and movies. Because the price increase was
announced after the quarter ended, the impact won't be reflected in
results until the fourth quarter.
Netflix shares rose 2.5% in after-hours trading Monday. The
stock has gained more than 60% this year, giving the company a
market value of more than $86 billion. While shares of Netflix
recently hit an all-time high, performance has been volatile, with
prices rising or falling at least 5% in a day 16 times in the last
two years.
The company said it now has $17 billion in streaming-content
obligations, a measure of current and future costs for content
acquisition, licensing and production, up from $14.4 billion in the
same quarter last year.
Competition for viewers' attention has been getting more fierce.
Some content owners, such as Walt Disney Co., are planning to offer
their own streaming services. Amazon, meanwhile, is boosting its
own spending to lure talent and create original shows. Hulu took
home best drama at this year's Emmy Awards for "The Handmaid's
Tale" -- becoming the first streaming service to win the coveted
prize. New players are on the horizon, with Apple looking to spend
roughly $1 billion to procure and produce original content over the
next year.
New and old entertainment giants are also fighting for talent
and resources. Netflix recently signed Shonda Rhimes, the creator
of ABC hits including "Grey's Anatomy" and "Scandal," to a
multiyear exclusive agreement to develop shows for the streaming
service. Netflix in August announced its first acquisition, buying
comic-book publisher Millarworld to gain access to production and
intellectual property such as "Old Man Logan."
The high-octane business model puts pressure on Netflix to
continue to add subscribers, and periodically raise its prices --
especially if the streaming giant hopes to increase what until now
have been relatively narrow profit margins.
In a letter to shareholders, Netflix said its record subscriber
additions were driven by strong appetite for its original series
and films, as well as adoption of internet entertainment
globally.
"It's an exciting period and both media and technology companies
see the same big opportunity as we do," Netflix said in the letter.
"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."
Revenue increased 30% to $2.99 billion.
Netflix posted a third-quarter profit of $130 million, or 29
cents a share, compared with a profit of $52 million, or 12 cents a
share, in the same quarter last year.
Analysts surveyed by Thomson Reuters had projected earnings of
32 cents a share on $2.97 billion in revenue.
Netflix added 4.45 million international subscribers in the
quarter, compared with its forecast of 3.65 million. It added
850,000 U.S. subscribers, compared with its target of 750,000.
Netflix has indicated to Wall Street it would like to be judged
primarily based on its revenue and global operating-profit margins
than metrics such as subscriber additions. But subscriber growth
has continued to remain a focus for investors.
The company's operating margin came in at 7%, compared to its
estimate of 6.9%.
Netflix has been aggressively pursuing global expansion as its
core U.S. market matures and as it works to offset growing content
costs and original programming investments.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 16, 2017 16:56 ET (20:56 GMT)
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