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Netflix's profits in the third quarter crushed Wall Street's expectations, but the streaming media giant warned investors not to expect the same during the holidays.
The company posted earnings of 89 cents a share during its latest period, the group reported on Tuesday.
That was 21 cents better than analysts surveyed by Bloomberg.
It has been boosted by subscriber additions above expectations and by ad hoc bookkeeping benefits.
But she warned that her earnings per share in the fourth quarter would be only 23 cents per share, less than half of what Wall Street predicts.
The company stated that its financial results would be weighed down by the obligation to recognize in its income statement the money invested in the licenses and development of films and series, especially its "originals".
Investors focused on the good side of the report.
In recent transactions after hours, Netflix shares rose $ 41.72, or 12%, to $ 388.12. Earlier in trade after hours, the stock had increased by 15%.
This is what Netflix reported compared to analysts' forecasts:
- Income Q3: $ 4 billion. Analysts also expected $ 4 billion. In the same quarter of last year, Netflix had sales of $ 2.98 billion.
- Earnings per share (GAAP) for the third quarter: 89 cents. Wall Street was looking for 68 cents a share. In the third quarter of last year, he earned 29 cents per share.
- Q3 subscriber additions: 6.96 million. Last year, Netflix added 5.3 million subscribers in the same period
- Turnover, T4 forecasts: Netflix projects will show $ 4.2 billion. Before the report, analysts had predicted that it would bring in $ 4.23 billion. In the fourth quarter of last year, Netflix achieved revenue of $ 3.29 billion.
- Earnings per share, forecast for the fourth quarter: The company is expecting 23 cents. Wall Street had planned to earn 50.4 cents per share. In the same quarter of last year, it had posted a profit of 41 cents per share.
- Subscriber Additions, T4 Forecast: Netflix has announced an increase of 9.4 million euros. During last year's vacation period, he added $ 8.33 million.
Netflix shares closed ordinary trading on Tuesday up $ 13.27 per share, or 4%, to $ 346.40.
Netflix's investments in shows, catch-up films
The company expects a drop in fourth-quarter profits due to its content costs.
Netflix invests billions of dollars a year to license and develop programs and films for its streaming services. It recognizes these costs in its income statement over time, usually in step with the time when movies and broadcasts become available to viewers.
As a result of these costs, the Company expects its operating margin, which corresponds to its earnings before interest expense, interest and other income, as well as taxes, to plummet by 12% of revenue. business for the quarter ended at 4.9% for the holiday period. The company still plans to generate an annual operating margin of between 10% and 11% of revenue.
"We would have preferred our operating margin to be a little more stable over the course of the year and we will aim for a slightly less quarterly spread next year to reach our target of 13% for the full year. the year, "said the company letter to shareholders.
At the same time, the Company's third quarter results were partly boosted by several non-recurring accounting items.
The revaluation of its euro-denominated bonds yielded a gain of $ 8 million. A $ 38 million tax benefit also stems from last year's tax law. Together, these two unexpected gains represented approximately 10 cents of its net profit at 21 cents per share.
But the company also benefited from having recruited many more new subscribers than expected. His account for the quarter was 2 million more than expected.
Despite the explosive quarter and the better-than-expected results announced, Netflix continues to spend very quickly on cash.
During the quarter, the Company's free cash flow – which represents the amount of cash generated or used in its operations, less the amount of expenses such as equipment, new content and capital investments – appeared in the red, away from 859 million dollars. This represented a deficit of $ 465 million in the same period a year earlier.
The company expects its negative free cash flow for the year to be between $ 3 and $ 4 billion, although it is probably closer to the former.
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