Netflix subscribers far ahead of target, 'material' profit seen in 2017

By Lisa Richwine and Rishika Sadam

(Reuters) - Netflix Inc added over 50 percent more subscribers than expected in the third quarter as original shows such as "Stranger Things" drew new international viewers and kept U.S. customers despite a price hike, sending its shares soaring 20 percent in late trade.

The company broke a two-quarter trend of disappointing subscription growth. Netflix, which has spent heavily to expand outside its home market, also said that it was on track to start harvesting "material global profits" next year, even as it raised spending on original programming.

Shares of Netflix rose to $119.82 in extended trade from a close of $99.80.

 

Netflix added about 3.20 million subscribers internationally in the third quarter, higher than the 2.01 million average analyst estimate. (http://bit.ly/2e2gsRD)

In the United States, Netflix added 370,000 subscriptions, compared with analysts' estimate of 309,000, according to research firm FactSet StreetAccount.

"Investors appear laser focused on subscriber growth, and so long as Netflix delivers on that metric, investors will bid its shares up," said Wedbush Securities analyst Michael Pachter. However, Pachter said he thought the continuing cost of developing new shows would undermine plans to deliver material profits in 2017.

Netflix has expanded into more than 130 markets worldwide, including most major countries, except China. It said on Monday it was dropping plans to launch a service in China in the near term, opting instead to license its shows for "modest" revenue.

It said it still hopes to launch service in China "eventually."

Netflix has been facing a slowdown in subscription growth in the United States as the market matures and a planned U.S. price hike raised concerns it would not hit its targets. It also faces competition from the likes of Hulu and Amazon.com Inc .

But the company, whose other popular original shows include "Orange is the New Black" and "House of Cards", said it expects to add 1.45 million subscribers in the United States in the current quarter.

Analysts on average were expecting 1.27 million additions, according to research firm FactSet StreetAccount.

In its international markets, it expects subscriber additions of 3.75 million, compared with the average analyst estimate of 3.32 million.

Third-quarter revenue rose 31.7 percent to $2.29 billion.

Netflix's shares have surged in the past few years, driven by rapid growth as the company redefined television and fueled "binge watching".

The stock, however, was down 12.7 percent this year as investors fretted about slowing growth in its domestic market and increasing competition.

(Reporting by Rishika Sadam in Bengaluru and Lisa Richwine in Los Angeles; Editing by Don Sebastian, Bernard Orr)