| Bloomberg | - |
Netflix
Inc. reported third-quarter profit that beat analysts' estimates, and
signed up U.S. customers faster than projected as the video-streaming
service passed HBO in paid domestic subscribers.
Netflix Sign-Ups Beat Estimates as U.S. Total Surges
By Cliff Edwards -
Oct 21, 2013 3:08 PM PT
Netflix Inc. (NFLX)
reported third-quarter profit that beat analysts’ estimates and added
U.S. customers faster than projected as the video-streaming service
passed HBO in paid domestic subscribers. The shares surged.
Profit increased fourfold to 52 cents a share, Los Gatos, California-based Netflix said today on its website, beating the 47-cent average of 27 analysts’ estimates. Including free trials, domestic users rose 4.3 percent to 31.1 million from the second quarter, surpassing the 31 million average of eight estimates compiled by Bloomberg.
The results suggest
Netflix’s Web-based service has growth potential beyond that of premium
cable-TV networks. Chief Executive Officer Reed Hastings is offering a
mix of original programs like “Orange Is the New Black” and unlimited
viewing of movies and TV shows for $7.99 a month. He has begun talks to
bring Netflix to cable-TV systems in the U.S., after reaching initial
deals in Sweden and the U.K.
“We have more content, much more viewing per member, a broader brand proposition, are on-demand, on all devices, and are less expensive” than HBO, Hastings said in a letter to shareholders. The company estimates it can reach 60 million to 90 million domestic streaming members, he wrote.
Netflix surged as much as 12 percent to $396.98 in extended trading after the results. The stock rose 6.4 percent to an all-time high of $354.99 at the close in New York and has risen almost quadrupled this year, for the biggest gain in the Standard & Poor’s 500 Index.
“Since we are otherwise using domestic profits to fund international markets, we will raise capital as needed to fund the growth of original content,” Hastings wrote.
Third-quarter net income jumped to $31.8 million from $7.68 million, or 13 cents a share, a year earlier.
Sales increased 22 percent to $1.11 billion from $905.1 million a year ago, beating estimates of $1.1 billion.
Hastings has hooked viewers with original programs such as “Orange Is the New Black,” which began streaming during the quarter, and the Emmy-winning “House of Cards.” The company has also reached deals to get exclusive movies from Walt Disney Co. (DIS) and DreamWorks Animation SKG Inc. (DWA)
While press coverage of the Emmys and “Orange Is the New Black” has spurred subscriber growth, a bigger percentage of Netflix viewing is generated by full-season reruns of shows such as “Breaking Bad,” “The Walking Dead” and “Pretty Little Liars,” Hastings wrote.
The company also began service in the Netherlands, helping bring its international subscriber total to 9.19 million. Netflix projected total users may reach 43.6 million in the fourth quarter, including 10.5 million outside the U.S.
Next year the company will spend about $500 million to market the service around the world, Hastings said.
In the U.S., paid subscribers totaled 29.9 million,, Netflix said. That’s an increase from 28.6 million as of June 30, and puts Netflix ahead of HBO, Time Warner Inc. (TWX)’s premium cable-TV network, which has about 28.7 million, according to researcher SNL Kagan.
While the number of streaming subscribers is growing, the DVD business, which shrank 4.8 percent sequentially, “is declining more rapidly than we expected,” said Michael Pachter, an analyst with Wedbush Securities, who rates the stock “underperform.”
“The valuation makes no sense at all,” Pachter said.
(Netflix held a video interview today. A replay can be seen at the company website http://ir.netflix.com/events.cfm)
To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net
To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net
Profit increased fourfold to 52 cents a share, Los Gatos, California-based Netflix said today on its website, beating the 47-cent average of 27 analysts’ estimates. Including free trials, domestic users rose 4.3 percent to 31.1 million from the second quarter, surpassing the 31 million average of eight estimates compiled by Bloomberg.
Netflix Inc. has said that paid subscribers totaled 29.9 million in the U.S. Photographer: Scott Eells/Bloomberg
Oct. 21 (Bloomberg) --
Bloomberg's Jon Erlichman breaks down Netflix's third-quarter earnings
report. He speaks on Bloomberg Television's "Street Smart." (Source:
Bloomberg)
“We have more content, much more viewing per member, a broader brand proposition, are on-demand, on all devices, and are less expensive” than HBO, Hastings said in a letter to shareholders. The company estimates it can reach 60 million to 90 million domestic streaming members, he wrote.
Netflix surged as much as 12 percent to $396.98 in extended trading after the results. The stock rose 6.4 percent to an all-time high of $354.99 at the close in New York and has risen almost quadrupled this year, for the biggest gain in the Standard & Poor’s 500 Index.
Raising Capital
The company expects to double its investment in original content next year, Hastings said, and may raise money to pay for it. Netflix also said it’s changing the accounting for shows that premiere on its service, which will result in costs being recorded sooner.“Since we are otherwise using domestic profits to fund international markets, we will raise capital as needed to fund the growth of original content,” Hastings wrote.
Third-quarter net income jumped to $31.8 million from $7.68 million, or 13 cents a share, a year earlier.
Sales increased 22 percent to $1.11 billion from $905.1 million a year ago, beating estimates of $1.1 billion.
Hastings has hooked viewers with original programs such as “Orange Is the New Black,” which began streaming during the quarter, and the Emmy-winning “House of Cards.” The company has also reached deals to get exclusive movies from Walt Disney Co. (DIS) and DreamWorks Animation SKG Inc. (DWA)
Owning Shows
The company is becoming “more comfortable” with owning original shows, rather than licensing them for set periods, Chief Content Officer Ted Sarandos said in a video interview after the results. Originals build interest in the service and are gaining audiences over time, he said. The company is actively looking to produce original movies, he said.While press coverage of the Emmys and “Orange Is the New Black” has spurred subscriber growth, a bigger percentage of Netflix viewing is generated by full-season reruns of shows such as “Breaking Bad,” “The Walking Dead” and “Pretty Little Liars,” Hastings wrote.
The company also began service in the Netherlands, helping bring its international subscriber total to 9.19 million. Netflix projected total users may reach 43.6 million in the fourth quarter, including 10.5 million outside the U.S.
Next year the company will spend about $500 million to market the service around the world, Hastings said.
In the U.S., paid subscribers totaled 29.9 million,, Netflix said. That’s an increase from 28.6 million as of June 30, and puts Netflix ahead of HBO, Time Warner Inc. (TWX)’s premium cable-TV network, which has about 28.7 million, according to researcher SNL Kagan.
HBO Competition
Hastings said he regards HBO as Netflix’s closest U.S. competitor, and is following the older network’s path. Thirty years ago, HBO aired its first original movie, a 1983 biopic of Canadian amputee and runner Terry Fox. Like HBO, Netflix has used original programming to build customer loyalty and to stand out from competitors such as Amazon.com Inc., the largest Web retailer, Hulu LLC and Redbox Instant by Verizon.While the number of streaming subscribers is growing, the DVD business, which shrank 4.8 percent sequentially, “is declining more rapidly than we expected,” said Michael Pachter, an analyst with Wedbush Securities, who rates the stock “underperform.”
“The valuation makes no sense at all,” Pachter said.
(Netflix held a video interview today. A replay can be seen at the company website http://ir.netflix.com/events.cfm)
To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net
To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net
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