Netflix investors react cautiously despite subscriber expectation beat

 
Oliver Gill
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Netflix said it was on track for $11bn of sales in 2017 (Source: Getty)

Netflix today revealed it had wooed more new subscribers than expected over the last three months.

In an announcement after the bell, the US video-streaming giant added 4.45m new customers in the third quarter, ahead of analyst expectations of 3.69m.

Shares in the Nasdaq-listed firm rose over 1.5 per cent in after-hours trading.

Netflix said it was "on track" to exceed $11bn (£8.3bn) of annual sales after growing third quarter revenues by 30 per cent to $2.99bn. Third quarter earnings were $273m, compared with $164m over the same period in 2016.

Analysts were cautiously optimistic about the results but said Netflix needed to continue its cash spending spree – around half a billion dollars each quarter – on marketing keep adding new subscribers.

Read more: Netflix is raising its prices in the UK for first time in two years

Good quarter

Paolo Pescatore, a vice president of multiplay and media at CCS Insight, said: "Overall, this was another good quarter for the company. In particular subscriber growth stood out once again which exceeded the previous quarter and for the same period last year."

Some 850,000 people signed up for Netflix in the US in the three months to September, compared with average analyst expectations of 810,000 according to data and analytics firm FactSet.

Verto analytics said Netflix now reaches 25 per cent of the US online population. This compares with a 16 per cent reach in the UK.

Pescatore added:

The challenge will be in the next quarter where it might see an impact due to the recent price rises. We reiterate our view that the company can achieve far greater growth in international markets. However, to maintain and, in some cases, exceed growth, Netflix will be forced to raise its spending on content and marketing.

Read more: Netflix lands a big blow in Disney battle by luring hitmaker Shonda Rhimes

Cash

Netflix once again dipped into its cash reserves over the last three months. Net cash used in operating activities was $420m down from $535m in the previous quarter.

"These latest set of results support our opinion that it needs to continue acquiring customers quickly, in order to balance its rising costs. With many local providers and operators are strengthening their video services, the competitive environment continues to intensify, and Netflix will face stiffer competition as rivals launch live TV services and move into sports rights, especially in the US," said Pescatore.

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