Netflix announced its third-quarter numbers, beats revenue and growth expectations
What: Netflix now has more than 40 million subscribers worldwide. Its solid results allow it to pursue expansion into new markets in 2014.
Why is it important: Despite its often troubled expansion into Latin America and the expected costs of entering new markets, Netflix's international presence has contributed in great part to its impressive growth and current revenue. Its original series have also been crucial for its leading position among VOD services.
By adding over 10 million subscribers in the last year, Netflix, the popular streaming TV and films service has surpassed HBO in the United States.
Netflix reported revenues of US $1.1BN and a net profit of US $32M for the third quarter of 2013, its third consecutive US $1BN quarter. Just over 31 million of its members are in the U.S., while 9.2 million are elsewhere in the world. The company's growth is being driven partly by its original series, including House of Cards, Hemlock Grove and Orange is the New Black.
Netflix reported 1.3 million net additions to its membership in the third quarter for the U.S., and 1.4 million elsewhere in the world, as it has also invested heavily in international expansion over the last year, launching in Latin America, the UK and the Netherlands. In fact, 38 million of its members were paying for the service at the end of the quarter.
The company cautioned that its international numbers were a bit skewed by a wave of free sign-ups in Latin America during the quarter, but even the number of paid international additions was strong, and CEO Reed Hastings has got even more specific, saying that he’d expect Netflix to generate between 70 and 80 percent of its revenue in international markets in the future. That’s significant because Netflix has said in the past that it expects to gather between 60 and 90 million customers in the U.S. Based on those numbers, Netflix seems to hope that it will grow its international markets up to a total of 450 million subscribers.
Shares in the company jumped about 10 percent to US $392 after hours on Monday as its profit outlook for the current quarter exceeded all expectations. Netflix predicted as much as US 73 cents per share in earnings in the current quarter. On average, Wall Street analysts who follow Netflix were only expecting US 46 cents. Overall, Netflix reported a profit of US $31.8 million, or US 52 cents a share, compared with US $7.7 million, or US 13 cents a share, a year earlier. Revenue climbed 22 percent to US $1.11 billion.
The 52-cents-per-share result was better than Wall Street analysts were expecting on the whole, while revenue was slightly in line with expectations, as reported by CNet.
An interesting fact is that the company is pouring all its domestic profits into international expansion, because it's important for Netflix to build up awareness of its service abroad if it wants to keep expanding, as its ability to grow in the US starts to bump up against its saturation point.
The company is planning to double its budget for original content in 2014. Also, CEO Reed Hastings and CFO David Wells explained that while Netflix's original series get most of the headlines, a bigger percentage of overall Netflix viewing is generated by its exclusive complete season-after series.
"During the quarter", Wells said, "we launched new seasons of The New Girl, The Walking Dead, Scandal, Breaking Bad, Revolution and Pretty Little Liars."
Netflix's top executives also said that tablets and mobile phones are "rapidly growing" devices for usage. However, both Hastings and Wells mentioned that although the company is open to integrations with cable set-top boxes around the world, given the fragmented technology footprints it could be many years before cable set-top boxes match Internet set-top boxes for Netflix streaming volume.