Netflix’s Third Quarter Earnings & Stock Rise

By Zachary Blackwood,
Money and Investing Writer

Netflix’s earnings have quadrupled over the past quarter, as its arsenal of original programming has helped to attract more than 1.3 million subscribers in the past quarter alone.

Netflix, Inc. (NASDAQ:NFLX) has been the biggest gainer in the S&P 500 this year, and has continued to beat ana­lyst’s predictions. Price of shares increased $369.28 this quarter.

For comparison, shares were at $69.58 on October 26, 2012, just one year ago. Chief Executive Officer Reed Hastings contributed the stock rise to “investor eu­phoria.”

He is very aware of Netflix’s market share in comparison with competitors- most notably, HBO, Inc. owned by Time Warner, Inc. (NYSE:TWX), HBO still has 114 million subscribers, compared to the 40 million that Netflix currently has.

Netflix still remains the world’s largest online subscription-streaming service, and it looks to continue its growth.

“The progress we’ve made over the last 10 years is stunning,” Hastings said. “We want to make the next 10 years even more remarkable.”

Netflix looks to increase its customer base to 60 million, and then to 90 million customers over time in the United States alone.

Over time, Hastings predicts that a majority of Netf­lix’s revenue will come from over­seas.

The company has already begun to do business in the Netherlands, with international subscribers reach­ing 1.4 million. Netflix projects that the number of international sub­scribers will climb to 10.5 million in the fourth quarter, and a total of 43.6 million globally.To sustain this growth, Netflix plans on doubling its spending. This will be done on original content in 2014, and it may even raise more to pay for it.

Hastings sees huge potential in Netf­lix’s original content, which has been met with critical acclaim. “House of Cards,” starring Kevin Spacey, has won three Emmy awards. “Orange is the New Black” was just introduced in the past quarter and has been met with rave reviews from sub­scribers. The show will end the year as Netflix’s most-watched piece of original programming yet, just narrowly beating out House of Cards.

Netflix’s original content strategy closely mirrors that of HBO, which intro­duced its first original movie in 1983 about Canadian amputee and runner Terry Fox. Netflix is using its original content to build customer loyalty and differentiate itself from competitors such as Amazon.com Inc. (NASDAQ: AMZN), Hulu LLC, and Redbox Instant by Verizon (NYSE: VZ).

Although original content has been a focus for Netflix during the past year, Netflix continues to draw the largest percentage of its viewers from wildly popular licensed television series, such as “Breaking Bad,” “the Walking Dead,” and “Pretty Little Liars.”

The company is also looking to reach deals for exclusive move rights from Walt Disney Co. (NYSE: DIS) and DreamWorks Animation SKG Inc. (NASDAQ: DWA).

Netflix predicts that fourth quarter profits will range from $29 million to $45 million, which translates to 47 to 73 cents per share, respectively.

All of this new growth comes af­ter years of volatility in Netflix stock. Hastings saw shares increased fivefold in 2003, to watch them drop 77 percent the next year as investors were skeptical about the future of the DVD-by-mail business.

Netflix again reached a high in 2011, which was quickly met with an 80 percent drop in price when the company imposed new pricing changes that caused uproar with customers and investors. Only time will tell whether Netflix’s newfound success will last.

A version of this article appeared in the Tuesday, Oct. 29 print edition.

Contact Zachary at
zachary.blackwood@student.shu.edu

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