Netflix returns to growth, saying the worst of slowdown is over

NETFLIX is growing again, and Hollywood can breathe a sigh of relief.

The streaming leader added 2.41 million customers in the third quarter, exceeding internal forecasts as well as expectations on Wall Street. Netflix grew in all regions of the world and said on Tuesday (Oct 18) it expects to sign up another 4.5 million globally this period.

While Netflix isn’t growing as it was a couple years ago, the world’s most popular TV network is back on a positive trajectory after erasing customer losses in the first half of the year. That’s good news for investors in Netflix and its peers who suffered steep stock-market losses when the company reported slowing growth earlier in the year.

“After a challenging first half, we believe we’re on a path to reaccelerate growth,” the company said in a letter to shareholders.

Shares of Netflix rose as much as 12 per cent to US$268.88 in extended trading after the results were out. The stock was down 60 per cent this year through the close Tuesday in New York.

A strong slate of fresh programmes attracted millions of new viewers in the third quarter. The period started with new episodes of Stranger Things, one of the most popular TV series in the world. Netflix also released the Korean smash hit Extraordinary Attorney Woo, the movies The Gray Man and Purple Hearts, and the true crime drama Monster: The Jeffrey Dahmer Story, its second-most-popular English-language original series.

Revenue for the quarter grew 5.9 per cent to US$7.93 billion, beating analysts’ projections. Profit of US$3.10 a share also topped estimates, and the number of paying customers increased to 223.1 million.

Dollar dilemma

It won’t be all rosy going forward. Netflix is still on pace for its slowest growth in years. The company lost 1.2 million customers during the first half of the year - a decline that led investors and peers to reconsider their streaming investments.

A big challenge on that front is the soaring dollar, which is taking a bite out of revenue and earnings. While Netflix said it can adjust content spending and pricing accordingly, its forecast for fourth-quarter sales and profit falls short of Wall Street estimates.

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The company estimates sales of US$7.78 billion this quarter, below the US$7.98 billion forecast by analysts. Earnings are expected to come in at 36 US cents a share, a fraction of the US$1.20 estimated on Wall Street.

Nonetheless, co-chief executive officers Reed Hastings and Ted Sarandos argue the company has plenty of room to grow.

The service accounts for about 8 per cent of TV viewing in the US and UK, two of its largest markets, and is adding market share every year, the company said in its letter. Netflix is also profitable, unlike the streaming services operated by most of its rivals.

Revenue initiatives

Management plans to increase sales by introducing an advertising-supported version of the streaming service in November and charging for password sharing next year. Customers willing to watch Netflix with five minutes of advertising per hour can pay US$7 a month, less than half of the cost of the most popular plan.

While investors have long judged Netflix based on the number of customers it adds every quarter, the company is trying to get them to consider more traditional financial metrics like revenue and operating income. As a result, the company said it will no longer provide subscriber forecasts. BLOOMBERG