Netflix Again Surpasses Subscriber Growth Estimates

By Austen Hufford Features Dow Jones Newswires

Netflix Inc. continued to exceed its subscriber-growth estimates, both at home and abroad, as the company said it expects to spend even more on original programming next year to help lure viewers amid an increasingly competitive streaming market.

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The Los Gatos, Calif., company ended its third quarter with 104 million paid streaming subscribers globally. It added 5.3 million streaming users in total, outpacing the 4.4 million it had projected.

Netflix has been pouring money into original programs such as "Stranger Things" and "The Crown" to fend off competition from other streaming services and continue to attract new subscribers around the world. The company now says it plans to spend $7 billion to $8 billion on content next year, far outstripping the investments expected from rivals Hulu, Amazon.com Inc. and HBO.

Earlier this month, the company said it would raise prices for its U.S. streaming-video customers, betting that subscribers will tolerate higher monthly fees and help fuel the company's big investments in TV shows and movies. Because the price increase was announced after the quarter ended, the impact won't be reflected in results until the fourth quarter.

Netflix shares rose 2.5% in after-hours trading Monday. The stock has gained more than 60% this year, giving the company a market value of more than $86 billion. While shares of Netflix recently hit an all-time high, performance has been volatile, with prices rising or falling at least 5% in a day 16 times in the last two years.

The company said it now has $17 billion in streaming-content obligations, a measure of current and future costs for content acquisition, licensing and production, up from $14.4 billion in the same quarter last year.

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Competition for viewers' attention has been getting more fierce. Some content owners, such as Walt Disney Co., are planning to offer their own streaming services. Amazon, meanwhile, is boosting its own spending to lure talent and create original shows. Hulu took home best drama at this year's Emmy Awards for "The Handmaid's Tale" -- becoming the first streaming service to win the coveted prize. New players are on the horizon, with Apple looking to spend roughly $1 billion to procure and produce original content over the next year.

New and old entertainment giants are also fighting for talent and resources. Netflix recently signed Shonda Rhimes, the creator of ABC hits including "Grey's Anatomy" and "Scandal," to a multiyear exclusive agreement to develop shows for the streaming service. Netflix in August announced its first acquisition, buying comic-book publisher Millarworld to gain access to production and intellectual property such as "Old Man Logan."

The high-octane business model puts pressure on Netflix to continue to add subscribers, and periodically raise its prices -- especially if the streaming giant hopes to increase what until now have been relatively narrow profit margins.

In a letter to shareholders, Netflix said its record subscriber additions were driven by strong appetite for its original series and films, as well as adoption of internet entertainment globally.

"It's an exciting period and both media and technology companies see the same big opportunity as we do," Netflix said in the letter. "We have a good head start but our job is to improve Netflix as rapidly as possible to please our members by earning their viewing time and to stay ahead of the competition in the decades to come."

Revenue increased 30% to $2.99 billion.

Netflix posted a third-quarter profit of $130 million, or 29 cents a share, compared with a profit of $52 million, or 12 cents a share, in the same quarter last year.

Analysts surveyed by Thomson Reuters had projected earnings of 32 cents a share on $2.97 billion in revenue.

Netflix added 4.45 million international subscribers in the quarter, compared with its forecast of 3.65 million. It added 850,000 U.S. subscribers, compared with its target of 750,000.

Netflix has indicated to Wall Street it would like to be judged primarily based on its revenue and global operating-profit margins than metrics such as subscriber additions. But subscriber growth has continued to remain a focus for investors.

The company's operating margin came in at 7%, compared to its estimate of 6.9%.

Netflix has been aggressively pursuing global expansion as its core U.S. market matures and as it works to offset growing content costs and original programming investments.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

October 16, 2017 16:56 ET (20:56 GMT)