DON’T CALL IT A COMEBACK
The company has reassured investors with subscriber growth in the third quarter
Netflix subscribers are up again, reassuring investors, but there are still hurdles on the horizon,
LOS ANGELES— Netflix Inc. reported that its streaming service signed up 3.57 million subscribers in the third quarter, vanquishing — for now — investor concerns about slowing growth at the world’s largest online TV network.
In the next year, the company will become more profitable, providing fuel for original shows such as the sci-fi hit Stranger Things and the crime drama Narcos, chief executive officer Reed Hastings told shareholders late Monday after results were announced. Netflix, based in Los Gatos, Calif., plans to spend a net $6 billion (U.S.) on programming in 2017, an increase of 20 per cent.
The growth in subscribers reassured investors who have made Netflix one of the hottest stocks in recent years, believing the company can spur the adoption of on-demand TV globally, as it did in the U.S., and become a dominant global online entertainment company.
Confidence in that trajectory was shaken three months ago when subscriber growth faltered. The company finished the third quarter with a better-than-projected 86.7 million customers worldwide.
“We are closing in on 100 million members, but I remind everyone at Netflix that Facebook and YouTube have one billion daily actives,” Hastings said on a call with analysts. “We are so small compared to those other Internet video firms, and we have a lot of catching up to do.”
The company still faces hurdles, including subscriber growth that continues to slow. Netflix generates little or no profit and its programming budget is still burning through funds. With $1.3 billion in cash at quarter’s end, Netflix said it plans to borrow via a debt sale in the coming weeks.
“For the balance of 2016, we will continue to operate around break even, and then start generating material global profits in 2017 and beyond, by marching up operating margins steadily for many years,” Netflix said in a statement Monday.
In the third quarter, Netflix added 3.2 million customers internationally and 370,000 in the U.S., beating analysts’ forecasts on both fronts. The company projected it will sign up 5.2 million customers in the final three months of 2016, lifting the total to almost 92 million.
Third-quarter revenue rose 32 per cent to $2.29 billion, beating the $2.28-billion average of analysts’ estimates. Net income increased 75 per cent to $51.5 million, or 12 cents a share, also topping the six-cent average of analysts’ estimates.
This quarter, Netflix forecasts U.S. subscriber gains of 1.45 million, compared with the one million average of analysts’ estimates, and internation- al additions of 3.75 million, compared with a 3.1-million estimate. New customers embolden Netflix to spend even more money on programming as it races to sign up customers around the world.
Most of its new spending will go to original programs such as Stranger Things, as well as a growing number of original foreign-language series. Netflix will increase its output of original shows to 1,000 hours next year from 600. Such exclusive programming, which currently accounts for 10 per cent to 20 per cent of its content budget, could climb to 50 per cent in the future, chief financial officer David Wells has said.
Netflix has no current plans to raise prices, but forecasts its average subscription price will rise 12 per cent this year as older, less expensive streaming plans are phased out. The change in pricing policies contributed to the slowdown in user growth in the second quarter, as some customers cancelling, and will restrain subscriber gains for the full year, the company said.