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After producing torrid growth all year, Netflix (NASDAQ: NFLX) took a breather last quarter when the company added just 5.15 million new subscribers, a far cry from the 6.2 million management had forecast. In its letter to shareholders, the company said, "The quarterly guidance we provide is our actual internal forecast at the time we report, and we strive for accuracy, meaning in some quarters we will be high and other quarters low relative to our guidance."
That still left investors and many on Wall Street to speculate, wondering whether the quarterly miss was a one-time event or the beginning of a long-term trend. When Netflix reported earnings after the market close on Tuesday, it reported subscriber numbers much higher than anticipated, proving once again that the company's growth story is on track.
The Haunting of Hill House exclusively on Netflix. Image source: Netflix.
A new Q3 record
| Metric | Q3 2018 | Q3 2017 | Year-Over Year Change |
|---|---|---|---|
| Revenue | $3.999 billion | $2.985 billion | 34.1% |
| Net income | $403 million | $130 million | 210% |
| Diluted earnings per diluted share | $0.89 | $0.29 | 207% |
Data source: Netflix third-quarter 2018 financial release.
Netflix's revenue of $3.999 billion edged past its forecast of $3.988 billion and was in line with analysts' consensus estimates of $4 billion. Profitability came in better than expected, as earnings per share of $0.89 soared past the $0.68 that both analysts and the company were expecting.
International streaming revenue grew 48% year over year, while domestic sales jumped 25% -- an impressive feat, given the maturity and growing saturation of the U.S. market.
In its quarterly letter to shareholders, Netflix said its "broad slate of original programming helped drive a solid quarter of growth" and added, "We're thrilled to be growing internet entertainment across the globe."
It's all about the subscribers
As in quarters past, investors were primarily concerned with subscriber growth, particularly in light of Netflix's rare miss last quarter. The company appears to have put those concerns to rest. Netflix added 6.96 million new subscribers, blasting past its forecast of just 5 million. The company gained 1.09 million domestic customers, compared with 650,000 forecast. Internationally, Netflix added 5.87 million subscribers, versus the 4.35 million it had anticipated.
Net new customer additions jumped 31% from the 5.3 million in the prior-year quarter. The company's total subscribers now number 137.1 million, a 25.5% increase over the same quarter last year.