Investors binge on Netflix after stellar earnings

Netflix added 3.6 million subscribers in the third quarter, buoyed by the hit series Stranger Things and Narcos, hushing sceptics of its strategy to globally dominate online TV viewing.

The news sent the company’s shares surging 20 per cent in late trading.

The world’s largest online TV network rebounded from a weak second quarter, adding about 370,000 customers in the US, more than forecasts of 304,000. Netflix, based in Los Gatos, California, had blamed a price increase for the slower growth earlier this year.

In its latest quarter, though, the company added 3.2 million customers outside the US, better than analysts’ average projection of 2 million.

“Investors appear laser focused on subscriber growth, and so long as Netflix delivers on that metric, investors will bid its shares up,” said the Wedbush Securities analyst Michael Pachter. However, Mr Pachter said he thought the continuing cost of developing new shows would undermine plans to deliver material profit next year.

In recent years investors have made Netflix one of the hottest stocks, believing the company would spur the adoption of on-demand TV outside the United States while continuing to revolutionize the TV business at home. The company, which will spend US$6 billion in cash on programming this year, credited original series Stranger Things and Narcos with attracting new customers.

For the third quarter, Netflix’s profit was $51.5 million on revenuse of $2.2bn. The year-earlier figures were a profit of $29m on sales of $1.7bn.

With 86.7 million total streaming subscribers, Netflix is relying on international markets to fuel its growth in the years ahead. The company does not provide much detail on its performance in specific territories, though executives have singled out Brazil and Australia as two strong markets. Canada and the United Kingdom are two of Netflix’s largest overseas customer bases, according to analysts.

Netflix in April cautioned growth would slow after a major global expansion that started this year. The company introduced its streaming service to 130 new territories in January, completing its rollout except for China. Newer markets, especially in Asia, have proven a challenge so far. In China, where local regulations have prevented Netflix from entering, prospects still do not look good, the chief executive Reed Hastings said this month. The company said Monday it would start licensing its programming to current streaming-video providers in China.

While the rate of deceleration in the second quarter surprised investors and analysts, Netflix has maintained it would surmount any challenges with its continued investment in quality programming.

Netflix has said its expenses on shows and movies would keep rising. Original programming, which currently accounts for 10 per cent to 20 per cent of its content budget, will climb to 50 per cent in the future, the chief financial officer David Wells has said.

“We will keep investing in growing the content spend, even domestically, for quite a long time,” Mr Hastings said.

* Bloomberg, with additional reporting by Reuters

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