With blockbuster subscriber gains, Netflix rocketed past its earnings estimates and met its revenue expectations. The movie subscription company posted $4 billion in revenue and earnings per share of 89 cents compared to 68 cents and $4 billion, respectively. Wall Street rewarded the stock handsomely, with the stocks registering an 11-percent gain after the market close in after-hours trading as of 7:59 p.m. on Tuesday (October 16).
At the same time, the company soared past its membership estimates: It reported net additions of 7 million customers, which marked a significant beat from its forecast of 5 million customers. (CNBC reported that domestic subscription additions clocked in at just over 1 million compared to a forecast of roughly 670,000.) In a letter to shareholders, the company noted that “the variance relative to forecast was due to greater-than-expected acquisition globally, with strong growth broadly across all our markets including Asia.”
When it comes to distribution deals, Netflix Chief Product Officer Greg Peters noted in an earnings interview posted on YouTube that the company is learning how it can leverage partners, evolving from device to billing integrations to make it easier for members to sign up. Lately, the company has been bundling with internet service providers as well as mobile and paid-TV operators. As a result, Peters said that “we can make it even easier for people to just find Netflix and to try the service out.”
At the same time, Peters said the offering allows the company to access a set of subscribers — a consumer demographic — that might be less early-adopter than customers who sign up directly for the service. The company is then able to accelerate growth in a new segment as it seeks to find out which markets work as it tries to optimize its bundle strategy. And that tack could still work even in places where consumers know about Netflix.
Even in the U.S., where awareness is high, Peters said there are still pockets of consumers that may not have the activation energy to go the company’s website and sign up. But, through bundling, consumers are able to click right into the service. And by making it easier for people to sign up, the company can see benefits in different kinds of markets: “You remove friction, and it works both in high- penetration high-awareness markets as well in lower-penetration lower-awareness markets,” Peters said.
The company’s most recent quarter comes after Netflix added 5.2 million subscribers in the second quarter of 2018, about 1 million below its 6.2 million forecast, a shortfall that spooked investors on July 16, with the company’s stock declining some 14 percent in after-hours trading that day.
For that quarter, ending on June 30, Netflix reported a 40 percent year-over-year gain in revenue to $3.91 billion, lower than the $3.94 billion generally expected by analysts. Earnings per share stood at 85 cents, more than the 79 cents expected by analysts. Net income increased to $384 million, up from $66 million for the same period last year. The company’s operating margin in Q2 2018 was 11.8 percent, up from 4.6 percent for the same period in 2017.
Going forward, the company said at the time that it hoped to capture more revenue and membership growth from its investments in original films, including romantic comedies. In its most recent letter, Netflix noted that it has “hundreds of people in physical production” working for the company on different scripted and unscripted titles. It also recently announced that it selected a new U.S. production hub — Albuquerque, New Mexico — and the company notes that its “internal studio is already the single largest supplier of content to Netflix (on a cash basis).”