Netflix Tops Q3 Sub Growth Forecast with Nearly 7 Million Additions

Netflix Oct. 16 returned to business as usual, reporting record third-quarter (ended Sept. 30) global subscriber growth of nearly 7 million, including 1 million in the United States – beating company projections. The service ended the period with 137 million subs, including 130 million paid.

The SVOD pioneer generated nearly $4 billion in revenue, up 34% from the previous-year period of nearly $3 billion. Net income tripled to $403 million from $130 million last year.

“Our broad slate of original programming helped drive a solid quarter of growth,” CEO Reed Hastings wrote in the shareholder letter. “We’re thrilled to be growing Internet entertainment across the globe.”

On the flip side, free cash flow ballooned 85% to $859 million from $465 million as Netflix continues to spend large on original content. Third-party streaming content obligations reached $18.6 billion compared to $17 billion last year.

Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, FCF is the cash left over after a company pays for its operating expenses and capital expenditures.

“We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past,” CEO Reed Hastings wrote in the shareholder letter. “These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead.”

Indeed, Netflix believes negative free cash flow will be closer to $3 billion than $4 billion for the full year 2018 as the FCF deficit year to date is negative $1.7 billion.

Finally, Netflix ended the period with more than 2.8 million by-mail disc subscribers, compared with 3.5 million last year. The packaged media unit generated $51.6 million operating profit on revenue of $88.7 million. That compared to operating income of $63.1 million and revenue of $110.2 million last year.

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