Netflix crushes subscriber forecasts, shares jump over 10%

The Netflix logo is pictured on a television remote in this illustration photograph.
The Netflix logo is pictured on a television remote in this illustration photograph. PHOTO: REUTERS

NEW YORK (REUTERS) - Netflix crushed Wall Street forecasts by adding 5.2 million new streaming customers in the second quarter and predicted continued momentum as foreign subscriptions topped those in the United States, lifting its stock 10.4 per cent on Monday (July 17).

Shares of the streaming-television pioneer jumped US$16.82 to US$178.55 in after-hours trading, beating their all-time intraday high of US$166.87 on June 8.

Netflix expects foreign growth to bring its first full-year profit for overseas markets in 2017, the company said in a letter to shareholders.

At the end of June, Netflix for the first time recorded more subscribers abroad than in the US - 52.03 million vs. 51.92 million.

A strong slate of TV series, such as 13 Reasons Why and the latest season of House Of Cards, brought in more customers than Netflix had predicted for the second quarter, typically its slowest season of the year. Wall Street had expected 3.2 million new customers worldwide.

Netflix added 4.14 million monthly subscribers in non-US markets, far more than the average analyst estimate of 2.59 million, according to data from analytics firm FactSet. In the US, it signed up 1.07 million subscribers, beating analysts' average estimate of 631,000.

Netflix projected adding 3.65 million international subscribers from July through September, compared with analysts'consensus estimate of 3.2 million.

The guidance assumes much of the second quarter's momentum will continue, the letter said, though it added that Netflix's forecasts had been too optimistic at times.

Netflix is spending US$6 billion a year on content to win new subscribers in a quest to become the world's top movie and TV streaming service, even as it faces a slowdown in US customer growth. It is customizing content for different countries and adding shows in various languages.

The company estimated negative free cash flow "for many years" as it buys more content to attract new subscribers. Netflix faces competition at home and abroad from streaming video providers such as Amazon.com's Prime Video and Alphabet's YouTube.

Investors are willing to tolerate the spending in exchange for booming customer growth, said Rosenblatt Securities analyst Alan Gould. "Most investors will take the trade-off of a 2 million (subscriber) beat."

Revenue rose 32.3 per cent to US$2.79 billion in the second quarter.

Net income rose to US$65.6 million, or 15 cents per share, from US$40.8 million, or 9 cents per share, a year earlier, just shy of analysts' forecast of 16 cents per share.