Netflix's Subscriber Gains Dazzle, Encouraging Bulls on Growth

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The Los Gatos, California-based streaming company released a record 676 hours of original programming in the third quarter, according to Cowen & Co. The company, founded in 1997 as a DVD-by-mail service, posted its strongest years of subscriber growth in 2016 and again in 2017 - in its 20th and 21st years of operation.

"(Netflix) shies away from talking about any one worldwide market too specifically, but it called out growth in Asia, and we believe India is becoming a bigger factor", said JPMorgan analyst Doug Anmuth.

Netflix reported earnings of 89 cents a share, topping analysts' consensus estimates of 68 cents a share. During that quarter, Netflix had a dearth of new programming that resonated with viewers the way hits like House of Cards and Stranger Things had done in the past.

The company's net income rose to $402.8 Mn in the third quarter ended on September 30, up from $129.6 Mn in the same quarter, a year earlier.

The actual total - which included about one million new subscribers in the U.S. and nearly 5.9 million overseas - set a record for the third quarter, Netflix said. Said eMarketer media analyst Paul Verna.

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Wedbush analyst Michael Pachter was another skeptic, saying he was "mystified by the investor love affair with Netflix's India opportunity", pointing to price differences in Netflix's monthly plans versus cable TV in the country. Netflix first signed a carrier billing in India with Vodafone previous year; postpaid customers could pay for Netflix on their monthly bills. "That's a really good number for a market that's this mature".

The analyst doesn't have an official price target for Netflix, but pegs the company's fair value at $377 a share.

Profit in the quarter more than tripled from a year ago to $403m while revenues grew 34% to $4 billion. Even before the after-hours surge on Tuesday, the shares were up 80 percent this year.

Netflix has upended the economics of pay TV by offering customers thousands of programmes on-demand for a monthly fee that's a fraction of the cost of a multichannel cable or satellite package. These positive results come as head-to-head competitors like Amazon and Hulu are ramping up their content investments, and as companies including Disney, AT&T, and Walmart are teeing up their own direct-to-consumer subscription services.

Neil Begley, a senior analyst at Moody's Investors Service, estimated that Netflix may spend closer to $9 billion on content this year, but he said keeping negative free cash flow to about $3 billion would not change the company's capital needs. "We're just going to focus on that for a very long time".

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