Why Netflix surged

Netflix stock continues to surge, with a rise of as much as 8% on Thursday

Netflix stock continues to surge, with a rise of as much as 8% on Thursday

This comes after the shares changed hands as much as 11% higher overnight. Yet the group’s hotly anticipated earnings were decidedly mixed. In fact, if investors had to come up with the ideal quarterly report in order to justify the purchase of more shares in the streaming video giant, its Q3 results out last night probably wouldn’t cut it. Check out the misses - and spot the handful of important beats – below. (All forecasts via Bloomberg.)

  • U.S. streaming paid net additions: up 520,000 vs. estimate of 798,360 rise
  • International streaming net additions: +6.26 million vs. +6 million est.
  • Revenue: $5.24bn, up 31% y/y, est. $5.25bn
  • EPS: $1.47 vs. $1.05 est.

Netflix also provided guidance on the current quarter (Q4) that will see investors revising expectations lower.

  • Revenue: $5.44bn, est. $5.51bn
  • EPS 51c, est. 82c
  • U.S. streaming paid additions: +600,000, est. +1.28 million
  • International streaming paid additions +7.00 million, est. +8.04 million

Disparate estimates may account for some of the reaction. For instance, some well-known consensus sources had projected international subscriber growth of 6.9 million, whilst pointing to a rise of around 860,000 in the states.

At root though, what with investor fears about a flood gate of looming competition (including Disney+) whilst subscribers appeared set to top out, NFLX’s quarter showed solid growth and rising earnings. CEO Reed Hastings acknowledged upcoming competitive threats, though said they posed a “moderate” headwind. Critically, the group is sticking to cash generation plans, the key path to eventual profitability. The free cash flow loss is still expected to be reduced to minus $3.5bn in 2020’s financial year.

In other words, the world’s dominant streamer remains in as good financial health as can be expected as its competitive landscape changes. That made the stock’s 20% fall in the year up to last night begin to look excessive. To be sure, growth will still come at a cost that can yet a possible share recovery at risk. For now though, investors continue to buy its confirmed growth story.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.