Shares of internet TV pioneer Netflix (NASDAQ: NFLX) have been on a tear this year, rocketing more than 60% higher as the company has continued to add subscribers at a rapid pace while dramatically improving its profitability.
On Monday afternoon, Netflix released a strong third-quarter earnings report, validating investors' confidence. Indeed, Netflix is primed to maintain an extremely high earnings growth rate for the foreseeable future.
Netflix's third quarter by the numbers
Last quarter, Netflix met or exceeded its guidance across nearly every important metric. (The one exception was domestic contribution profit, which came in 4% below the company's forecast, primarily due to the timing of content spending.) Here are the details of Netflix's Q3 performance compared to its original forecast:
| Metric | July Forecast | Q3 Actual |
|---|---|---|
| Total revenue | $2.97 billion | $2.99 billion |
| Operating income | $204 million | $209 million |
| Domestic subscriber adds | 0.75 million | 0.85 million |
| Domestic contribution profit | $576 million | $554 million |
| International subscriber adds | 3.65 million | 4.45 million |
| International contribution profit | $30 million | $62 million |
Data source: Netflix Q2 and Q3 2017 subscriber letters. Chart by author.
Domestic subscriber growth continues to moderate. At the end of September, Netflix had 52.77 million domestic streaming subscribers, up about 11% year over year. Yet with average selling prices (ASPs) on the rise, domestic streaming revenue still jumped 19% year over year.
Meanwhile, Netflix's international growth is still accelerating. The company added 4.45 million international subscribers last quarter, up from 3.2 million in the third quarter of 2016. In dollar terms, international streaming revenue surged 56% year over year during the quarter.
International profitability is moving in the right direction
Netflix has consistently prioritized growth over short-term profitability outside the U.S. That said, its older international markets are starting to mature. This allowed the company to post a $62 million international contribution profit last quarter, despite still investing heavily in growth markets like Asia. This was Netflix's second-ever quarterly international contribution profit.
The fourth-quarter forecast calls for international contribution profit to nearly double on a sequential basis to $115 million. If this guidance is met, it would end the year with a $207 million contribution profit from international markets, compared to a $309 million contribution loss in 2016.