Netflix Subscriber Growth Sends Stock Soaring

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Netflix CEO Reed Hastings

The streamer added 3.57 million subscribers worldwide during the third quarter.

Netflix added 3.57 million subscribers during the third quarter, more than the 2.3 million additions expected for the quarter. 

The news allayed investor concern about Netflix's ability to continue to grow, especially as it raises prices, and sent the company's stock up more than 21 percent during afterhours trading on the Nasdaq. 

In total, Netflix ended the quarter with 83.3 million paid subscribers. Netflix beat its projections by adding 370,000 subscribers in the U.S. during the quarter, and its strong international growth — 3.2 million subs — was enough to push the company past its conservative estimates. Last quarter, subscriber growth was hit by price increases that rolled out to customers during the spring. Netflix notes in its shareholder letter that during the first nine months of the year it has added 12 million members, the same as the first nine months of 2016; however, 2015 did not have the boost from Netflix's launch in 130 countries. 

Speaking on a call with investors on Monday afternoon, CEO Reed Hastings noted that "when we have some big originals, it definitely generates business" but he explained that the release of tent-pole original series and movies do not affect subscriber growth on an annual basis by very much.

Revenue for the quarter passed $2 billion for the first time, up 36 percent from the same period last year. Earnings were 12 cents per share.

Netflix expects 5.2 million subscriber additions during the fourth quarter, 1.45 million in the U.S. and 3.75 million internationally. That would represent a slight decline year-over-year in subscription growth, reflecting the completion of its rollout of higher prices. 

As Netflix continues to push toward more original content, with a goal of 50-50 original and licensed content, the company has announced that it plans to release over 1,000 hours of original programming in 2017, up from 600 hours this year. That equates to a content budget of $6 billion in 2017. 

Content chief Ted Sarandos, speaking on the call with investors, noted that while original programming will continue to be a larger percent of Netflix's overall content, that doesn't mean it'll stop licensing content too. "The licensed business as a percentage of business will shrink but as an absolute business will continue to grow," he said. 

Meanwhile, he addressed the hiring of former NBCUniversal executive Bela Bajaria and how that fits into his strategy for more unscripted programming. "It's not a material part [of the business] for the next year but I imagine it could be growing over the next several years," he said, noting that it is content that travels well to other countries and is "efficient to produce." 

Much of Netflix's growth over the last year has been due to its push internationally. One region it has yet to launch in is China and now the company is saying that it will license its content to online service providers in China instead of operating its own service there. 

Netflix recently announced that it will be integrated into Comcast's X1 service, a move that Hastings said isn't necessarily about adding more subscribers because "Comcast users tend to be advanced, high-income households so many of them already have Netflix."

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