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Netflix posted much stronger results than expected for the third quarter of 2018, pushing the central streaming operations into after-hours trading.
In the third quarter, Netflix injected 1.09 million new subscribers in the US and 5.87 million internationally. This is compared to the company's forecast of 650,000 net domestic additions and $ 4.35 million abroad for the September quarter, a more conservative outlook than previous analysts' estimates.
The third-quarter results, better than expected, follow Netflix's inaction on second-quarter subscriber growth forecasts, which CEO Reed Hastings has described as "reversal." »Periodic of the activity.
Netflix said the total net additions for the quarter of 7.0 million streaming sub-services – a new record for Netflix for the third quarter – resulted from a customer acquisition exceeding expectations at the # 39, on a global scale, "with strong growth
in all our markets, including Asia, "the company said in its quarterly letter to investors. Netflix ended the quarter with 137.1 million streaming members worldwide (58.4 in the US, 78.6 million worldwide).
The company announced a turnover of $ 4.0 billion in the third quarter, up 36% over the previous year, and a profit of 89 cents per share, higher than the expectations of the analysts. Wall Street's third quarter consensus on Netflix had set EPS at 68 cents on a $ 4.0 billion business figure.
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Netflix shares climbed 14% on Tuesday after trading hours. In advance of the earnings report, the stock closed up 4% for the day, at $ 346.40 per share.
The company, which is expected to spend about $ 13 billion in content on a gross basis in 2018, continues to operate with negative free cash flow. Netflix's free cash flow in the third quarter was – $ 859 million (compared with – $ 465 million in the same quarter last year). For the full year, the company expects free cash flow to be closer to – $ 3 billion to $ 4 billion, and free cash flow negative in 2019 are about the same as this year.
"We recognize that we are investing heavily in content, and we want to assure our investors that we have the same high confidence in the underlying economic situation as our cash investments in the past," Netflix said in its letter to shareholders. . "We believe that these investments will most likely help us keep our sales and operating profits up for a very long time."
In terms of the originals, Netflix touted the performance of his romantic comedy films "Summer of Love". More than 80 million of its subscribers – accounting for at least 58% of its 137.1 million streaming users worldwide in late September – watched one of its rom-coms' Summer of Love In the last few months. "To All The Boys I Loved Before" is one of the most watched original movies to date.
Netflix also announced the launch in December of "Roma", a title candidate, of Alfonso Cuarón, a drama series from the '70s chronicling a year in the life of a middle-class family in Mexico City, with an outing simultaneous on Netflix. and over 100 screens around the world. It's the same with "July 22" by Oscar-nominated director Paul Greengrass.
The company cited the new European Union rules requiring streaming services to allocate at least 30% of their catalogs to European productions and some countries to require services such as Netflix to invest part of the revenues. local works in European works. "We expect to meet these requirements by expanding our content offering," Netflix said in its letter to shareholders.
For the fourth quarter, Netflix expects net additions paid of $ 7.6 million – and total net additions of $ 9.4 million – up 15% and 13%, respectively, over the same period of the year. last year.
In an effort to help it provide more specific insights into subscriber trends, Netflix said that from its fourth quarter 2018 report (to be released in January 2019), it would provide guidance. only for paid subscriptions; then, in 2020, it will stop reporting the number of free trials at the end of the quarter. "Because the growth in the number of paid memberships is more stable, our forecasts of paid net additions are historically more accurate than our forecasts of total net additions," Netflix said. For example, in the second quarter of this year, forecasts of net paid additions were down 11%, compared to a 17% difference for total net additions forecasts.
In addition, for the fourth quarter of 2018, Netflix announced its intention to reclassify "certain personnel costs" from G & A (general and administrative) to content and marketing, and from technology and development to "other costs of income. " the constant evolution of our business to include content self-generation, "said Netflix, noting that the reclassification would have no impact on total operating expenses, the profit of the company, and operating margin or operating margin and aimed to provide a clearer picture of marketing and content expenses.
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