Record growth in number of Netflix subscribers dispels Wall Street worries

(Reuters) – Netflix Inc has attracted 7 million new streaming subscribers from July to September, one-third more than Wall Street had forecast, reassuring investors worried about the company, which was facing a slowdown in growth. its rapid growth.

The record number of additions in the third quarter brought the Netflix customer base to 137 million worldwide, confirming its rank as the world's largest online subscription video service.

Netflix shares, which had already grown by nearly 78% this year, jumped 14% to $ 394.25 after normal business hours, boosting other high tech stocks.

The increase in the number of subscribers marked a turning point compared to three months ago, when investors sent Netflix shares tumbling 14% after missing the growth targets of Wall Street subscribers.

"The question at the end of the second quarter was whether this omission was an aberration or signs of a longer-term downturn in activity," said Jim Nail, an analyst at Forrester Research. "The answer: an aberration, probably the result of a somewhat weak volume of content in the last quarter."

Netflix results sent shares of Alphabet Inc., Facebook Inc. and Amazon.com Inc., up about 1% on extended trading. The four companies form the so-called FANG group of high-growth companies that, in recent months, have lost some of their momentum after the market leader gains made in recent years.

GREAT CONFIDENCE

Netflix is ​​investing more than $ 8 billion in entertainment programs this year to attract new customers around the world. In the third quarter, she released her largest selection of original TV shows and movies to date, including new successful seasons such as "Orange, It's the New Black" and "BoJack Horseman" ".

That paid in terms of new subscribers. Wall Street analysts were expecting Netflix to add about 5.2 million streaming customers during the quarter.

The company has exceeded expectations in the US and international markets. Netflix has announced it has recruited about 1.1 million subscribers in the United States, against 674,000 according to analysts, according to Refinitiv. Its international operations added nearly 5.9 million subscribers, compared to an average estimate of 4.5 million analysts.

In a letter to shareholders, Netflix said it has seen "strong growth in all of our markets, including Asia."

The executives said the public welcomed deals tailored to specific markets, such as "Sacred Games" in India, which the company has identified as the key to its development.

"We have the impression that we have a long and long track ahead of us in India," said Greg Peters, director of products, during a video interview after the publication of the results.

For the current quarter, Netflix plans to add 1.8 million customers in the United States and 7.6 million customers in international markets.

"We want to assure investors that we have in the past great confidence in the underlying economic situation," said Netflix in his letter.

COMPETITION

During the September quarter, Netflix added approximately 676 hours of original programming in the US, an increase of 135% over the previous year, according to analysts at Cowen and Co.

Netflix has borrowed heavily to finance such rapid growth of television shows and movies. It has issued net bonds of $ 7.5 billion in less than three years, although this may have a cost in a changing economic environment.

"Rising interest rates could make Netflix increasingly vulnerable to increasing the cost of capital," said Tuna Amobi, an analyst at CFRA.

At the same time, Netflix is ​​facing competition from pockets like Amazon and the new streaming services from Walt Disney Co and AT & T Inc. expected late next year.

Netflix said it expects operating margins to be in the lower end of the range of 10% to 11% for the full year 2018. It has brought down its negative cash flow forecast at more than $ 3 billion. The company had previously forecast $ 3 billion to minus $ 4 billion.

Neil Begley, a senior analyst at Moody's Investors Service, said Netflix would spend nearly $ 9 billion in content this year, but said keeping free cash flow at around $ 3 billion would not change the numbers. capital requirements of the company.

"They will probably continue to increase their debts twice a year," he said.

Netflix net income reached $ 402.8 million, or 89 cents per share, in the third quarter ended September 30, up from $ 129.6 million, or 29 cents a share, a year earlier . This exceeds the average analyst estimate of 68 cents, according to Refinitiv.

Total sales reached $ 4 billion, which is in line with analysts' expectations, compared with $ 2.98 billion a year earlier.