Netflix returns to growth, saying the worst of the downturn is over
(Bloomberg) — Netflix Inc. is growing again and Hollywood can breathe a sigh of relief.
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The streaming leader added 2.41 million customers in the third quarter, beating internal forecasts as well as expectations on Wall Street. Netflix has grown in all regions of the world and said on Tuesday it expects to register an additional $4.5 million worldwide during this period.
Although Netflix isn’t growing like it was a few years ago, the world’s most popular television network is back on a positive trajectory after erasing customer losses in the first half. That’s good news for investors in Netflix and its peers who suffered heavy stock market losses when the company reported slowing growth earlier in the year.
“After a difficult first half, we believe we are on track to accelerate growth,” the company said in a letter to shareholders.
Netflix shares rose 12% to $268.88 in extended trading after the earnings release. The stock is down 60% this year through Tuesday’s close in New York.
A solid offer of new programs attracted millions of new viewers in the third quarter. The period began with new episodes of Stranger Things, one of the most popular television series in the world. Netflix also released Korean hit Extraordinary Attorney Woo, films The Gray Man and Purple Hearts, and true crime drama Monster: The Jeffrey Dahmer Story, its second most popular English original series.
Revenue for the quarter rose 5.9% to $7.93 billion, beating analysts’ forecasts. Earnings of $3.10 per share also beat estimates, and the number of paying customers rose to 223.1 million.
Everything will not be rosy for the future. Netflix is still on pace with its slowest growth in years. The company lost 1.2 million customers in the first half of the year, a decline that led investors and peers to reconsider their investments in streaming.
A big challenge on this front is the soaring dollar, which is eating away at revenues and profits. While Netflix said it could adjust content spending and pricing accordingly, its fourth-quarter sales and profit forecasts are lower than Wall Street estimates.
The company estimates sales at $7.78 billion this quarter, below analysts’ forecast of $7.98 billion. Earnings are expected to reach 36 cents per share, a fraction of the $1.20 estimated on Wall Street.
Still, co-chief executives Reed Hastings and Ted Sarandos say the company has plenty of room for growth.
The service accounts for about 8% of television viewing in the United States and the United Kingdom, two of its biggest markets, and is growing its market share every year, the company said in its letter. Netflix is also profitable, unlike the streaming services operated by most of its competitors.
Management plans to boost sales by introducing an ad-supported version of the streaming service in November and charging for password sharing next year. Customers wanting to watch Netflix with five minutes of advertising per hour can pay $7 a month, less than half the cost of the most popular plan.
While investors have long judged Netflix by how many customers it adds each quarter, the company is trying to get them to consider more traditional financial metrics like revenue and operating profit. As a result, the company said it will no longer provide subscriber forecasts.
(Updates with fifth paragraph shares.)
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