Coverage: Netflix shares soar after earnings beat

Netflix Inc.’s shares rose by more than 20 percent in after-hours trading after the video service reported that its subscriber growth in the most-recent quarter bested even the most optimistic expectations.

Mike Snider of USA Today had the news:

The Los Gatos, Calif.-based Internet streaming video provider added 3.2 million new international subscribers and 370,000 new U.S. subscribers in the months of July-September. That far exceeds the company’s forecast of about 2.3 million new subscribers, 2 million of them international and 300,000 in the U.S.

Some bullish Wall Street analysts had suspected Netflix of being conservative with its forecast, but few, if any, expected growth of more than 3 million total. Investors were also enthusiastic about the company’s fourth quarter forecast of an estimated 5.2 million new subscribers from October through December.

Netflix shares skyrocketed on the news in after hours trading Monday, rising 20% to $119.78. Shares closed Monday down 1.65% to $99.80 and had been down nearly 13% for the year.

Anita Balakrishnan of CNBC.com noted the company’s original programming boost:

“We are now in the fourth year of our original content strategy and are pleased with our progress,” the company said in a letter to shareholders. “In 2017, we intend to release over 1,000 hours of premium original programming, up from over 600 hours this year.”

The company said it gained 370,000 net memberships in the U.S. and 3.2 million internationally, a total of 3.57 million, handily beating the 2.3 million the company forecast.

The company said in July it expected to add 300,000 subscribers in the U.S. and 2 million subscribers internationally in the third quarter. Analysts polled by StreetAccount expected 309,000 U.S. streaming subscribers and 2.01 million international streaming subscribers.

“They’re adding fewer subscribers this year than they did last year. … You know, that’s why I think you’ve got to be careful with this stock,” Barton Crockett, senior research analyst at FBR Capital Markets, told CNBC’s “Closing Bell” on Monday.

Shira Ovide of Bloomberg Gadfly reports that Netflix is using its U.S. growth to fund international expansion:

People who look at the Netflix ink blots and see sunny skies should be comforted by the latest quarterly results. But they also should remember that Netflix needs its U.S. business to perform perfectly to bankroll the company’s global ambitions. And it’s far from perfect.

The three months ended Sept. 30 were the eighth quarter out of the last 10 in which Netflix signed up fewer net new streaming U.S. subscribers than it did in the same quarter a year earlier. Even the expected jump in subscribers Netflix forecasts for the fourth quarter to 1.45 million would be fewer than the 1.6 million net new U.S. subscribers the company added in the final three months of 2015.

Netflix is also going deep into the red to expand its web streaming into nearly every country in the world and to pay for the TV shows and movies that will lure people and keep them hooked. The company hasn’t posted positive free cash flow in two years, and free cash flow deteriorated to negative $489 million in the third quarter as the company spent more on those exciting original shows. Netflix is on the hook for $14.4 billion in future payments for streaming video programming. That’s nearly double the company’s revenue for the last 12 months.