Stock surges to all-time high after quarterly subscriber gains top forecasts
Netflix added 5.2 million overall streaming subscribers in the second quarter of 2017, dramatically beating investor expectations for both U.S. and international growth.
In the U.S., the company packed on 1.07 million streaming subs and added 4.14 million overseas. Wall Street analysts had expected Netflix to add 3.2 million streaming customers in the period (600,000 in the U.S. and 2.6 million internationally), which was in line with the company’s guidance issued in April.
“In Q2, we underestimated the popularity of our strong slate of content which led to higher-than-expected acquisition across all major territories,” Netflix execs wrote in their Q2 letter to shareholders. The second quarter historically has been a weaker period for Netflix subscriber adds.
Shares of Netflix jumped more than 10% in after-hours trading Monday, to an all-time high of more than $178 per share.
Netflix also issued a strong forecast for the third quarter, projecting 750,000 U.S. net adds and 3.65 million internationally. For Q3, analyst projections had ranged from 630,000 to 750,000 in the U.S. and from 2.85 million to 3.5 million internationally.
On the financial side, Netflix came in close to Wall Street forecasts, but missed on earnings per share by a penny. It reported $2.79 billion in revenue and a net profit of 15 cents per share; analysts on average expected Netflix to post revenue of $2.76 billion and EPS of 16 cents.
On the originals front, Netflix continues to plow forward despite cancellations of high-profile shows including “The Get Down” and “Sense8.”
“As much as we dislike ending a series early, it consoles us that it frees up investment for another new show, or two,” Netflix said in the Q2 letter. “We are programming to please our members and we keep that as our guiding light.” The company called out recent new series that have had a “big impact” like “Stranger Things,” “13 Reasons Why,” and “Las Chicas del Cable” (“Cable Girls”) — its first original series from Spain.
Netflix said it will continue to use debt to finance its spending, including on original content, after closing a $1.4 billion offering (1.3 billion euros) in April. That means the company expects to have negative free cash flow “for many years,” execs said in the letter to investors. In Q2 2017, free cash amounted to -$608 million compared with -$254 million in the year-earlier quarter. It forecasts negative free cash flow of $2.0 billion to $2.5 billion for the full year 2017.
“With our content strategy paying off in strong member, revenue and profit growth, we think it’s wise to continue to invest,” Netflix said in the Q2 letter.
Last week, the streamer picked up 91 nominations in the 2017 Emmy Awards, up from 54 last year — a record for the company, and second only to perennial leader HBO (which had 111). Netflix has five contenders in best-series categories: “Stranger Things,” “The Crown,” “House of Cards,” “Master of None” and “Unbreakable Kimmy Schmidt.”
As of the end of June, Netflix stood at 104 million streaming subscribers, with 50.1% of those outside the U.S.
“It’s been 20 years since Netflix was founded and we still thrive on connecting people with great stories,” the company said in the shareholder letter. “Someday, we hope to entertain everyone.”
Pictured above: Netflix chairman and CEO Reed Hastings