Daily Management Review

Netflix Shares Jump 20 Percent as its Subscriptions Boom Around World


Netflix Shares Jump 20 Percent as its Subscriptions Boom Around World
Netflix Inc has kept U.S. customers despite a price hike and as original shows such as "Stranger Things" drew new international viewers, the company’s shares soared 20 percent in late trade as it added over 50 percent more subscribers than expected in the third quarter.
A two-quarter trend of disappointing subscription growth was broken by the company in the third quarter. Even as Netflix raised spending on original programming, it also said that it was on track to start harvesting "material global profits" next year as the company  has spent heavily to expand outside its home market.
Shares of Netflix rose to $119.82 in extended trade from a close of $99.80.
Clocking higher than the 2.01 million average analyst estimate, Netflix added about 3.20 million subscribers internationally in the third quarter. According to research firm FactSet StreetAccount, compared with analysts' estimate of 309,000, Netflix added 370,000 subscriptions in the United States.
"Investors appear laser focused on subscriber growth, and so long as Netflix delivers on that metric, investors will bid its shares up," said Wedbush Securities analyst Michael Pachter. However, plans to deliver material profits in 2017 would be undermined by the continuing cost of developing new shows, Pachter said.
Including most major countries, except China, Netflix has expanded into more than 130 markets worldwide. Opting instead to license its shows for "modest" revenue  the company said that it was dropping plans to launch a service in China in the near term.
The company said it still hopes to launch service in China "eventually."
In the process of building its stable of original and licensed TV shows and movies, Netflix plans to keep pouring money into it in the meantime. The company mentioned a $1 billion increase from 2016 as content spending will rise to $6 billion next year. “We will keep investing in growing the content spend, even domestically, for quite a long time," Chief Executive Reed Hastings said on webcast.
As a planned U.S. price hike raised concerns it would not hit its targets and as the market matures, Netflix has been facing a slowdown in subscription growth in the United States. Competition from the likes of Hulu and Amazon.com Inc. is also faced by the company.
But the company it expects to add 1.45 million subscribers in the United States in the current quarter, said Netflix whose other popular original shows include "Orange is the New Black" and "House of Cards". According to research firm FactSet StreetAccount, analysts on average were expecting 1.27 million additions.
"Netflix has successfully navigated the challenges of a price increase," retail research group Conlumino said in a note. The note added that it had been "somewhat less successful" in maintaining subscriber growth.
Compared with the average analyst estimate of 3.32 million, it expects subscriber additions of 3.75 million in its international markets.
Third-quarter revenue rose 31.7 percent to $2.29 billion.
Driven by rapid growth as the company redefined television and fueled "binge watching", Netflix's shares have surged in the past few years.
But as investors fretted about slowing growth in its domestic market and increasing competition, the stock, however, was down 12.7 percent this year.