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Netflix Inc. (NFLX - Free Report) reported third-quarter 2017 earnings of 29 cents per share, which missed the Zacks Consensus Estimate of 32 cents but grew 141.7% on a year-over-year basis. Revenues of $2.985 billion increased 30.3% year over year and came ahead of the consensus estimate of $2.973 billion.
Moreover, the company added 5.3 million subscribers, much more than the expected 4.4 million.
Netflix’s focus on international expansion and original regional content has paid off, with 4.45 million overseas net new additions in the quarter. The company also reported profit from the international operations this quarter.
The company remains confident of adding more subscribers as the trend of binge viewing is catching up fast. Netflix now has 109.3 million subscribers globally.
The third quarter had a strong programming slate, with popular shows likeNarcos and Fuller House returning for new seasons and new releases like Ozark, Nick Stoller’s Friends from College and Marvel’s The Defenders. The company’s portfolio of original films also improved with the addition of Death Note, Naked and To the Bone to its platform this quarter.
Notably, shares of Netflix have gained 63.7% year to date, significantly outperforming the industry’s13.3% rally.
Segment Revenues
International Streaming revenues (44.5% of total revenue) soared 55.6% year over year to $1.327 billion driven by an increase in paid members.
Domestic Streaming revenues (51.8% of total revenue) improved 18.6% from the year-ago quarter to about $1.547 billion.
However, the DVD business continues to be in trouble, with revenues (3.7% of total revenue) declining 16.7% year over year to $110 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were approximately 104 million, up from 83.28 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 52.77 million, up from 47.5 million in the year-ago quarter. Paid members increased to 51.35 million from 46.48 million in the same period.
In the International Streaming segment, the company recorded 56.48 million members compared with 39.25 million in the prior-year quarter. Paid members were approximately 52.68 million, up from 36.8 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 22.8% compared with 20.8% in the year-ago quarter.
Consolidated operating income grew 96.7% year over year to $208.6 million. Consolidated operating margin increased 240 basis points (bps) to 7%.
Balance Sheet
Netflix had $1.746 billion in cash and cash equivalents as of Sep 30, 2017 compared with $1.734 billion as of Dec 31, 2016.
Cash used in operations in the quarter was $419.6 million compared with $461.9 million used in operations in the prior-year quarter. The company reported free cash outflow of $464.9 million.
Outlook
For the fourth quarter of 2017, management forecasts earnings of 41 cents per share.
Domestic and international streaming revenues are expected to be $1.616 billion and $1.553 billion, respectively. Total streaming revenues are expected to be $3.169 billion while total revenue, including the DVD business, is anticipated to be $3.274 billion.
Management expects to add 1.25 million subscribers in the domestic streaming segment and 5.05 million subscribers in the international segment. Netflix estimates the U.S. contribution margin to be around 34.4% in the quarter.
The company forecasts total operating income of $238 million for the quarter.
Netflix plans to release 80 original movies in 2018.
Our Take
Netflix has been drawing strength from its growing portfolio of original content. The company has also been ramping up its efforts to boost regional programming. This is expected to expand its international presence as the domestic market approaches saturation.
Netflix shows have been very popular. Recently, the company won 20 Emmy Awards out of the 91 categories that it was nominated in, compared with nine awards and 54 nominations last year. The award wins reflect the growing popularity of Netflix’s original content. The acquisition of comic book publisher Millarworld in August will further help the company to improvise on its contents.
However, investors need to watch out for high costs that accompany rapid international expansion and production of original content. The whopping budget of $6 billion this year and $7-8 billion to be spent on original content next year might weigh on the bottom line.
Also, stringent competition from established players like Amazon (AMZN - Free Report) Prime, Hulu and Time Warner’s HBO is a major headwind. Moreover, Apple (AAPL - Free Report) and Facebook are also gearing up to boost their original content portfolio.
Given the scope for growth in the market, all the players are ramping up their efforts to boost subscriber base.
We believe Netflix’s “opportunistic” acquisition strategy and its plans to diversify into other business, as noted in the last conference call, will help it to counter competition in streaming. With such an increase in budget for original content by all providers, Netflix’s attempt to look for newer channels to expand global reach is prudent in our view.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Netflix (NFLX) Q3 Earnings Miss, Subscriber Growth Impressive
Netflix Inc. (NFLX - Free Report) reported third-quarter 2017 earnings of 29 cents per share, which missed the Zacks Consensus Estimate of 32 cents but grew 141.7% on a year-over-year basis. Revenues of $2.985 billion increased 30.3% year over year and came ahead of the consensus estimate of $2.973 billion.
Moreover, the company added 5.3 million subscribers, much more than the expected 4.4 million.
Netflix’s focus on international expansion and original regional content has paid off, with 4.45 million overseas net new additions in the quarter. The company also reported profit from the international operations this quarter.
The company remains confident of adding more subscribers as the trend of binge viewing is catching up fast. Netflix now has 109.3 million subscribers globally.
The third quarter had a strong programming slate, with popular shows likeNarcos and Fuller House returning for new seasons and new releases like Ozark, Nick Stoller’s Friends from College and Marvel’s The Defenders. The company’s portfolio of original films also improved with the addition of Death Note, Naked and To the Bone to its platform this quarter.
Notably, shares of Netflix have gained 63.7% year to date, significantly outperforming the industry’s13.3% rally.
Segment Revenues
International Streaming revenues (44.5% of total revenue) soared 55.6% year over year to $1.327 billion driven by an increase in paid members.
Domestic Streaming revenues (51.8% of total revenue) improved 18.6% from the year-ago quarter to about $1.547 billion.
However, the DVD business continues to be in trouble, with revenues (3.7% of total revenue) declining 16.7% year over year to $110 million.
Subscriber Base
At the end of the quarter, Netflix's paid streaming members across the globe were approximately 104 million, up from 83.28 million in the prior-year quarter.
In the Domestic Streaming segment, Netflix’s subscriber base totaled 52.77 million, up from 47.5 million in the year-ago quarter. Paid members increased to 51.35 million from 46.48 million in the same period.
In the International Streaming segment, the company recorded 56.48 million members compared with 39.25 million in the prior-year quarter. Paid members were approximately 52.68 million, up from 36.8 million in the year-ago quarter.
Margins
Consolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) was 22.8% compared with 20.8% in the year-ago quarter.
Consolidated operating income grew 96.7% year over year to $208.6 million. Consolidated operating margin increased 240 basis points (bps) to 7%.
Balance Sheet
Netflix had $1.746 billion in cash and cash equivalents as of Sep 30, 2017 compared with $1.734 billion as of Dec 31, 2016.
Cash used in operations in the quarter was $419.6 million compared with $461.9 million used in operations in the prior-year quarter. The company reported free cash outflow of $464.9 million.
Outlook
For the fourth quarter of 2017, management forecasts earnings of 41 cents per share.
Domestic and international streaming revenues are expected to be $1.616 billion and $1.553 billion, respectively. Total streaming revenues are expected to be $3.169 billion while total revenue, including the DVD business, is anticipated to be $3.274 billion.
Management expects to add 1.25 million subscribers in the domestic streaming segment and 5.05 million subscribers in the international segment. Netflix estimates the U.S. contribution margin to be around 34.4% in the quarter.
The company forecasts total operating income of $238 million for the quarter.
Netflix plans to release 80 original movies in 2018.
Our Take
Netflix has been drawing strength from its growing portfolio of original content. The company has also been ramping up its efforts to boost regional programming. This is expected to expand its international presence as the domestic market approaches saturation.
Netflix shows have been very popular. Recently, the company won 20 Emmy Awards out of the 91 categories that it was nominated in, compared with nine awards and 54 nominations last year. The award wins reflect the growing popularity of Netflix’s original content. The acquisition of comic book publisher Millarworld in August will further help the company to improvise on its contents.
However, investors need to watch out for high costs that accompany rapid international expansion and production of original content. The whopping budget of $6 billion this year and $7-8 billion to be spent on original content next year might weigh on the bottom line.
Also, stringent competition from established players like Amazon (AMZN - Free Report) Prime, Hulu and Time Warner’s HBO is a major headwind. Moreover, Apple (AAPL - Free Report) and Facebook are also gearing up to boost their original content portfolio.
Given the scope for growth in the market, all the players are ramping up their efforts to boost subscriber base.
We believe Netflix’s “opportunistic” acquisition strategy and its plans to diversify into other business, as noted in the last conference call, will help it to counter competition in streaming. With such an increase in budget for original content by all providers, Netflix’s attempt to look for newer channels to expand global reach is prudent in our view.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. Price, Consensus and EPS Surprise | Netflix, Inc. Quote
Zacks Rank
Currently, Netflix has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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