Netflix (NFLX 367.94, +21.54, +6.22%) is up after the company handily surpassed
subscriber estimates yesterday afternoon.
The company reported third quarter subscribers above its forecast (adding 6.96 mln subs versus 5 mln guidance) and guided fourth quarter subscribers above Wall Street estimates (9.4 mln subs versus 7.5 mln estimates.)
Netflix reported a whopping 130 mln paid subscribers, up 25% yr/yr. The company forecasted 146.5 mln subscribers to end the year (including free trials.)
Subscribers are the key metric for Netflix as the company continues to build on its enormous lead in the streaming market.
Strong third quarter results allay concerns about competition and saturation that arose when the company missed its forecast and guided down subscribers three months ago.
The company is said to have ~60% penetration in the US and only ~15% internationally (among people with internet access), so there is still plenty of room to continue growing outside the US.
Third quarter streaming revenue grew 36% to $3.9 bln as average paid membership increased 25% and ASP rose 8%. Content and marketing spend shifted into the third quarter from the fourth. So earnings beat estimates but were guided down for the fourth quarter.
Investors overlook the cash burn as the company continues to invest in content to grow subscribers. The company expects to burn ~$3 bln in cash this year and next. Netflix expects a 10% operating margin this year and a 13% operating margin next year.
The market's reaction today may be prescient for how other highly-valued growth stocks will perform during third quarter earnings season.
Growth stocks have succumbed to a (likely much-needed) valuation correction this month after long-term interest rates broke out. Higher rates increase the discount rate investors will pay for future earnings. Clearly, Netflix investors are upbeat on the company's outlook rather than paying 100x near term earnings. That said, the ~10x sales multiple is in-line with high quality software stocks.
Netflix stock found resistance near the late September/early October highs in the $380 area and quickly faded this morning but are still up 6% intraday.
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