Netflix (NFLX) reaches a new record for subscriber growth in Q3

Netflix Inc. (NASDAQ: NFLX) surpassed earnings expectations for the third quarter of 2019 while revenues came in line with estimates. Shares jumped over 9% in aftermarket hours on Wednesday.

Total revenues of $5.25 billion were up 31% from the same period last year and in line with forecasts of $5.25 billion. Excluding currency impacts, revenue growth was 35%.   

Net income was $665 million, or $1.47 per share, compared to $403 million, or $0.89 per share, in the prior-year quarter. Analysts had forecast EPS of $1.04.

Total paid net adds of 6.8 million increased 12% year-over-year and was an all-time Q3 record. Average streaming paid memberships and ARPU grew 22% and 9% year-over-year, respectively.

In the US, paid net adds totaled 0.5 million versus the company’s forecast of 0.8 million. The slower membership growth in the US was mainly due to the price hikes rolled out earlier in the year. However, revenue growth accelerated with a 16.5% year-over-year increase in US ARPU. International paid net additions grew 23% year-over-year to 6.3 million while ARPU rose 10%.  

The company’s strategy to focus on original content due to the withdrawal of second run content from other studios is paying off. The success of its original content has helped drive member viewing and engagement. Stranger Things Season 3 and the new limited series Unbelievable contributed to this growth.

Also read: Netflix Q3 2019 Earnings Preview

Free cash flow totaled (-)$551 million in the quarter. For the full year of 2019, free cash flow is expected to be approx. (-)$3.5 billion. The rapid growth in the revenue base coupled with operating margin expansion will help the company fund more of its content spending internally. Free cash flow is expected to improve from 2020.

For the fourth quarter of 2019, the company expects revenues to grow 30% to $5.4 billion. Net income is expected to be $232 million, or $0.51 per share. Global paid net adds are expected to be 7.6 million, with 0.6 million in the US and 7 million internationally. Streaming ARPU is expected to grow 9%.  

Netflix also said that from the fourth quarter of 2019 onwards, the company would report revenue and membership by region. The regional divisions will be Asia Pacific (APAC), Europe, Middle East & Africa (EMEA), Latin America (LATAM), and the US and Canada (UCAN).

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