Netflix Inc.'s Crushing Quarter: What You Need to Know

By Daniel

Image source: Netflix.

Continue Reading Below

It's no wonder shares of streaming video company Netflix (NASDAQ: NFLX) soared about 20% in after-hours trading on Monday after reporting third-quarter results. Expectation-crushing performance and an optimistic outlook for continued growth were impossible to overlook. Here's a rundown of some of the most intriguing takeaways from Netflix's third-quarter shareholder letter.

Subscriber growth

Helping to moderate any concerns about slowing subscriber growth earlier this year, the company reported higher-than-expected net member additions in Q3. Netflix added 3.57 million subscribers in its third quarter, well over its July forecast for just 2.3 million subscribers.

More From

While Netflix's U.S. member additions were ahead of the company's forecast for the quarter, the biggest outperformance came from its international segment, where it added 3.3 million members.

After adding about 3.6 million members during the quarter, Netflix total streaming members now amount to nearly 87 million.

"Our over-performance against forecast (86.7m total streaming members vs. forecast of 85.5m) was driven primarily by stronger than expected acquisition due to excitement around Netflix original content," Netflix said in its third-quarter shareholder letter.

Netflix specifically mentioned the second season of Narcos as original content that "had a positive impact on member acquisition across all of our markets."

The company also projected higher-than-expected subscriber growth in Q4, forecasting 5.2 million net member ads, ahead of analyst expectations by FactSet for 4.6 million members.

Localizing international markets

Netflix management has emphasized throughout that year that while it had expanded to 130 new countries in January, it hadn't yet put much effort into localizing its services for these markets. After localization was underway, the company would "be able to see more opportunity," CEO Reed Hastings said during the first-quarter earnings call.

Now Netflix is beginning to localize some of these markets, noting in its third-quarter shareholder letter that it has localized Netflix in Poland and Turkey.

These "nice gains" in viewing and retention -- two important metrics for Netflix's business over the long haul -- preview a promising future for how well the service may perform in new markets as it is localized.

Image source: Netflix.

Improving profitability

As Netflix approaches the end of its un-grandfathering process of hiking its prices for some members paying lower rates, it is benefiting handsomely. With its average selling subscription prices up 10% year over year in the U.S. and international segments in Q3, Netflix's U.S. contribution profit soared 38% year over year.

Strong growth in U.S. contribution profit helped Netflix report earnings per share of $0.12 -- double analyst expectations for the quarter and up from $0.07 in the year-ago quarter.

A review of the company's third-quarter results shows good reason for investor optimism, proving worries about the company's price increase and its international markets were likely overly exaggerated.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.