Netflix delivered significantly stronger results than expected in the third quarter of 2018, causing its share of the streaming powerhouse to climb after-hours.
In the third quarter, Netflix generated 1.09 million new streaming subs in the US and 5.87 million internationally. This compares with the company's forecast of 650,000 domestic net gains and 4.35 million overseas for the September quarter – a more conservative outlook than previous analyst estimates.
The better-than-expected Q3 results come after Netflix largely missed second-quarter expectations for subscriber growth, which led CEO Reed Hastings to periodically "package" the industry.
Netflix said the total net additions for the quarter of 7.0 million streaming subs ̵
in all our markets including Asia." according to the quarterly investor letter. Netflix ended the quarter with 137.1 million streaming members worldwide (58.4 in the US, 78.6 million internationally).
The company reported sales of $ 4.0 billion for the third quarter, an increase of 36 percent over the previous year's expectations. Netflix's third-quarter consensus Wall Street estimates for Q1 showed earnings per share of 68 cents on sales of $ 4.0 billion.
The Netflix share rose on Tuesday evening by up to 14%. The stock climbed 4% to $ 346.40 per share before the earnings report.
The company, which is expected to spend $ 13 billion on gross content in 2018, continues to operate on a negative cash flow basis. Netflix's free cash flow for the third quarter was $ – 859 million compared to $ 465 million in the year-ago quarter. For the full year, the company expects free cash flow to be closer to $ 3 billion to $ 4 billion, and that the negative free cash flow in 2019 will remain roughly the same.
"We recognize that we are making great progress We want to reassure our investors that we have the same confidence in the underlying economic aspects of our past cash holdings," said Netflix in its Letter to Shareholders. "These investments will most likely help us grow our revenue and operating profits for a very long time."
On the front Netflix propagated the performance of his romantic comedy "Summer of Love". More than 80 million of its subscribers, representing at least 58% of the total 137.1 million worldwide streaming users at the end of September, have seen one of their "Summer of Love" com-coms over the past few months. "To all the guys I have once loved "was one of his most-watched original films.
Netflix also announced a December release for award candidate "Roma" by Alfonso Cuarón, a drama series from the 1970s one year in the life of a middle-class family in Mexico City, with simultaneous publication of day and date Netflix and over 100 screens worldwide. The same applies to the "July 22nd" of Oscar-nominated director Paul Greengrass.
The company cited the new rules of the European Union, according to which streaming services have to deliver at least 30% of their catalogs to European productions and others Countries will need services like Netflix to invest part of their local revenues in European works. "We expect to meet these requirements by developing our content offering," said Netflix in the Letter to Shareholders.
On the other hand, Netflix opposed the EU move, saying that "quotas can be negative, regardless of market size, impacting customer experience and creativity." We believe a more effective way for a country to support strong local content is one direct incentive for local content creators, regardless of the distribution channel. "
Netflix forecasts net paid revenue of 7.6 million for the fourth quarter – and a net total of 9.4. The number increased 15%, or 13%, over the same period last year.
To provide more accurate customer trend advice, Netflix said, starting with the Q4 2018 report (which will be published in January 2019), there will only be guidelines for paid memberships; then in 2020 it will stop reporting the census at the end of the quarter. "As growth in paid memberships is more stable, our forecast for paid net gains in the past has been more accurate than our overall net growth forecasts," said Netflix. In the second quarter of this year, the forecasts for paid net growth were 11%, compared to a 17% deviation for the net net growth forecast.
In addition, Netflix predicted a reclassification for the fourth quarter of 2018. "Specific personnel costs" from G & A (general and administrative) to content and marketing, and technology and development to "other costs of revenue." The changes will "include the ongoing evolution of our business to self-production of content," Netflix said that the reclassification would have no impact on total cost of ownership, operating profit or operating margin and should provide a clearer picture of marketing and content costs.