Netflix’s third-quarter earnings crushed Wall Street’s expectations, but the streaming media giant warned investors not to expect the same for the holidays.
The company posted a profit of 89 cents a share in its most recent period, it reported on Tuesday. That was a full 21 cents a share better than analysts polled by Bloomberg had forecast.
But it warned that its per-share earnings in the fourth quarter will be just 23 cents a share — less than half of what Wall Street had predicted. The company said its bottom line will be weighed down by having to recognize on its income statement the money it’s invested in licensing and developing movies and shows, particularly its so-called Originals.
Investors focused on the bright side of the report. In recent after-hours trading, Netflix’s stock was up $41.72, or 12%, to $388.12 a share. Earlier in after-hours exchanges, the stock was up as much as 15%.
Here’s what Netflix reported, compared with analysts’ forecasts:
- Q3 Revenue: $4 billion. Analysts were expecting $4 billion also. In the same quarter last year, Netflix pulled in $2.98 billion in sales.
- Q3 Earnings per share (GAAP): 89 cents. Wall Street was looking for 68 cents a share. In last year’s third quarter, it earned 29 cents a share.
- Q3 subscriber additions: 6.96 million. In the same period last year, Netflix added 5.3 million subscibers
- Revenue, Q4 forecast: Netflix’s projects it will post $4.2 billion. Prior to the report, analysts had predicted it would pull in $4.23 billion. In the fourth quarter last year, Netflix saw sales of $3.29 billion.
- Earnings per share, Q4 forecast: The company expects 23 cents. Wall Street had projected it would earn 50.4 cents a share. In the same quarter last year, it posted a profit of 41 cents a share.
- Subscriber additions, Q4 forecast: Netflix said it will add 9.4 million. In the holiday period last year, it added 8.33 million.
Netflix’s stock closed regular trading Tuesday up $13.27 a share, or 4%, to $346.40.
The company expects its profit to plunge in the fourth quarter because of its content costs. Netflix has been investing billions of dollars a year to license and develop shows and movies for its streaming services. It recognizes those costs on its income statement over time, usually in sync with when the movies and shows become available to viewers.
Thanks to those costs, the company expects its operating margin — which is its profit before interest expenses, interest and other income, and taxes — to plunge from 12% of revenue in the just-completed quarter to just 4.9% in the holiday period. The company still expects to post a full-year operating margin of around 10% to 11% of sales.
“We would have preferred our operating margin to have been a little steadier over the course of the year, and we will target a little less quarterly variance next year in our progress to our full year target of 13%,” the company said in a letter to shareholders.
Business Insider will be covering the Netflix Q3 results live so hit refresh or click here for the latest updates.
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