Netflix shares surge on better-than-expected Q3 results

Netflix shares surged in after-hours trade as the US TV streaming service reported stronger-than-expected Q3 earnings numbers.

Netflix shares surge on better-than-expected Q3 results

Netflix shares closed higher in the US Tuesday and surged in after-hours activity, following the release of stronger-than-expected third-quarter earnings details. The US TV streaming service reported a 34% increase in total revenues, while it added 7 million new paid members.

Netflix shares ended the US Tuesday trading session 3.98% higher at $346.40. However, the stock surged over 11% after the trading day ended, as Netflix released its report post the closing bell.

Netflix Q3 performance

After a disappointing second quarter for the business, investors were likely hoping that its Q3 numbers would deliver better news – and they did.

Netflix said total streaming revenues, including DVD, jumped 36% to $3.9 billion in the third quarter, compared with a year earlier. Excluding DVD, revenues rose 34% to $4 billion, over the same period.

Those gains reflected a 7 million rise in memberships – higher than the 5 million increase the firm had previously forecast. It brings the total number of Netflix members to over 137 million.

Major investment in original programming is proving supportive of a growing membership. Netflix plans to spend some $8 billion on programming this year. Much of that will be devoted to its own content, which chief content officer, Ted Sarandos described as “efficient” than the licensed content Netflix users can access through the service.

“We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past,” Netflix wrote in a letter to investors.

“These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead,” Netflix added.

Q4 outlook

Following the release of an upbeat third quarter financial report, Netflix’s outlook for the fourth quarter includes:

  • Forecast for 7.6 million increase in paid subscribers.
  • Operating margin of 5% - down from 7.5% from Q4 2017.

“This sequential decline in operating margin in the second half of 2018 is due to the timing of content spend and a higher mix of original films in Q4 2018,” Netflix wrote.

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