Netflix's 3rd-quarter earnings blow through Wall Street's expectations
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Netflix's third-quarter earnings crushed Wall Street's expectations thanks to a surge in subscribers, but the streaming-media giant warned investors that the costs of developing original content will take a bite out of its profit at the end of the year.
Netflix added 6.96 million new subscribers in Q3, well above the 5.3 million new subscribers it reeled in at this time last year and the roughly 5 million expected by analysts.
The better-than-expected subscriber additions, combined with some one-time accounting-related benefits, helped Netflix handily beat Wall Street profit targets. The company posted a profit of 89 cents a share in its most recent period, a full 21 cents a share better than analysts polled by Bloomberg had forecast.
Netflix's stock was up $41.72, or 12%, to $388.12 a share in after-hours trading on Tuesday. Earlier in after-hours exchanges, the stock had been up as much as 15%.
Even as investors cheered the good news, Netflix warned that its per-share earnings in the fourth quarter would be just 23 cents a share — less than half of what Wall Street had predicted. Netflix said its bottom line would be weighed down by having to recognize on its income statement the money it's invested in licensing and developing movies and shows, particularly its "Originals."
Netflix said it would continue to invest heavily in content, and stressed the increasing competition it faces from giants like Apple and Amazon in its quarterly letter to shareholders.
"Content companies such as WarnerMedia and Disney/Fox are moving to self-distribute their own content; tech firms like Apple, Amazon and others are investing in premium content to enhance their distribution platforms. Amid these massive competitors on both sides, plus traditional media firms, our job is to make Netflix stand out so that when consumers have free time, they choose to spend it with our service," Netflix said.
Here's what Netflix reported, compared with analysts' forecasts:
Netflix's stock closed regular trading Tuesday up $13.27 a share, or 4%, to $346.40.
The company expects its profit to plunge in the fourth quarter because of its content costs.