Netflix's third-quarter results baffled Wall Street's expectations, but the streaming media giant warned investors not to expect the same for the holidays.
The company has reported a profit of 89 cents per share in its most recent period, it said on Tuesday. That was a whole 21 cents a share better than Bloomberg's forecast analysts.
But it warned that earnings per share in the fourth quarter will be only 23 cents per share – less than half of what Wall Street had predicted. The Company expects that its operating income will be impacted as the income statement will need to invest the money invested in the licensing and development of films and shows, particularly the so-called originals.
Investors focused on the positive side of the report. Netflix stock rose $ 41
Here's what Netflix reports, compared to analysts' forecasts:
- Q3 Revenue: $ 4 billion. Analysts also expected $ 4 billion. In the same quarter of the previous year, Netflix generated revenue of $ 2.98 billion.
- Q3 Earnings per Share (GAAP): 89 cents. Wall Street was looking for 68 cents per share. In the third quarter of last year, it earned 29 cents a share.
- Q3 subscriber access: 6.96 million. In the same period last year, Netflix added 5.3 million subscribers
- revenue, Q4 forecast: Netflix projects it will book $ 4.2 billion. Prior to the report, analysts had predicted that $ 4.23 billion would flow. In the fourth quarter of last year, Netflix generated revenue of $ 3.29 billion.
- Earnings per share, Q4 forecast: The company expects 23 cents. Wall Street had predicted that it would earn 50.4 cents a share. In the same quarter of the previous year, a profit of 41 cents per share was achieved.
- Subscriber Additions, Q4 Forecast: Netflix said it would add 9.4 million. In the holiday season of last year, it added 8.33 million.
Netflix stock closed Tuesday's trading at $ 13.27 a share, or 4%, at $ 346.40.
The company expects earnings to decline in the fourth quarter due to the cost of the product. Netflix has invested billions of dollars a year to license and develop shows and films for its streaming services. It recognizes these costs in the income statement over time, usually in accordance with the time when the films and shows become available to viewers.
Thanks to these costs, the company expects the operating profit margin – earnings before interest, interest, and other income and taxes – to fall from 12% of sales in the just-completed quarter to just 4.9%. For the full year, the company still expects an operating margin of about 10% to 11% of sales.
"We would have preferred that our operating margin would have been more stable over the year, and next year we will aim for a slightly lower quarterly deviation in our progress towards our full-year target of 13%," the company said a letter to the shareholders.
Business Insider will be sharing the results of Netflix Q3 live, so click on Refresh or click here for the latest updates.