7 million new subscribers helped Netflix Inc. surpass its own financial goals – The Fool Motley

Streaming video veteran Netflix (NASDAQ: NFLX) released its third quarter results just after the closing bell on Tuesday. Netflix has greatly exceeded its own guidance goals.

Netflix Third Quarter Results: Gross Figures

Data source: Netflix.

What happened to Netflix this quarter?

• Netflix provided indicative targets on 27 different trade measures for this quarter. The company exceeded these estimates in 27 cases, from subscriber growth and revenue to national operating income and international profit margin.
• Net profits are expected to be close to $ 0.65 per share, but $ 0.89 instead. This figure includes earnings per share of $ 0.10 resulting in unexpected effects on the tax and currency. The rest of the surprise was based on the rapid growth in the number of subscribers.
• Netflix now serves 58.5 million domestic subscribers and 76.6 million overseas customers, for a total of 137.1 million. This represents an increase from 52.8 million, 56.5 million and 109.3 million the year before.
• The average Netflix subscriber paid $ 10.00 per month for service in the third quarter, an increase of 8% over the previous year.

What management had to say

Subscriber additions will remain essential in Netflix's history for many years, but the company is currently modifying the release of these numbers. By arguing that the number of paying subscribers offers a more predictable view of the company than the total figure (which also includes users still enjoying a free trial promotion), Netflix will change its reporting goal based on this indicator.

"Because the growth in the number of paid memberships is more stable, our forecasts of paid net additions are historically more accurate than our predictions of net additions," wrote the management team in its letter to the shareholders. "For example, in Q2 & 18, our forecast net additions paid were down 11%, compared to a 17% gap for total net additions forecasts. after one year, in 2020, we will stop reporting the number of free trials at the end of the quarter. "

At this point, the graphs and reported figures will focus solely on paid subscriber numbers. The difference is not huge, but the paid tendencies are drawn with a much more stable hand. The FIFA World Cup this summer seems to have left the paid additions largely intact, but the chart including the free trials almost disappeared in June.

Look to the front

• In the fourth quarter, Netflix expects revenue growth of 28% over the previous year and revenue of nearly $ 4.2 billion.
• The operating margin will be squeezed at around 5%, up from 12% in the third quarter and 7.5% in the fourth quarter of last year, due to a higher production volume of original content. important.
• In the end, this translates into a profit of about $ 0.23 per share. Achieving this goal would reduce profit by 44% to $ 0.41 per share from the same period last year.
• The company does not provide specific guidance on free cash flow, but management has updated its cash flow targets. Netflix, which was already hoping to spend between $ 3 billion and $ 4 billion in free money in 2018, now estimates that the final count should be closer to the $ 3 billion limit. Given that free cash flow amounted to a negative $ 1.7 billion so far this year, at least $ 1.3 billion of red ink remains on this line for the fourth quarter. For comparison purposes, Netflix reported negative free cash flow of $ 524 million for the fourth quarter of 2017.