Netflix regained its stride with surprisingly strong subscriber growth in the third quarter, after an unexpected springtime stumble triggered fears that it was losing its allure.
The video-streaming service added 7 million subscribers worldwide from July through September, far above the company’s target of 5 million and exceeding analyst projections.
Netflix fell well shy of its subscriber goals for the April-to-June period, raising fears that fiercer competition from Amazon, Hulu, HBO and other streaming services was siphoning away viewers.
In a show of confidence, Netflix predicted it will pick up another 9.4 million subscribers during the current quarter ending in December — traditionally one of the company’s busiest times because of all the subscriptions given as holiday gifts. Even so, the forecast calls for 1.1 million more subscribers than Netflix gained in the same period last year.
Netflix ended September with 137 million worldwide subscribers, including 58.5 million in the U.S.
“Netflix’s strong quarter will at least temporarily put to rest questions over the long-term viability of its business,” said eMarketer analyst Paul Verna.
Investors lifted Netflix’s stock by more than 11 percent to $386.30 in extended trading. The stock still remains below its record high of $423.21 in June, just before the subscriber-growth scare Netflix announced in July.
Subscriber growth has always been more important to investor perceptions of Netflix than its relatively small profits. Investors are counting on Netflix to grow quickly in order to gain an insurmountable advantage over streaming rivals in an increasingly crowded market.
In an effort to be more precise and reduce the volatility in its stock, Netflix plans to exclude people on free trials of its service from its subscriber numbers. In a letter to shareholders Tuesday, Netflix said it believes paid subscribers now are a more stable indicator of how well the service is doing.
“I’m afraid the (second quarter-to-third quarter) story is probably mostly an issue of forecasting as opposed to anything changing in the business,” Netflix CEO Reed Hastings said during comments broadcast in an online video.
On the financial front, Netflix earned $403 million on revenue of $4 billion in the quarter. But the company continued to burn through cash to pay for its programming, which includes a critically acclaimed selection of shows such as “Stranger Things,” ”Orange Is The New Black,” and “Ozark.”
In a coup, Netflix shows won 23 Emmys in last month’s awards ceremony, tying HBO for the most among all TV networks.
The laurels are proving expensive. Netflix had a negative cash flow of $859 million in the third quarter, nearly doubling from a negative cash flow of $465 million last year. The trend raises the possibility that Netflix might need to borrow money to pay its bills, something that is getting more expensive to do as interest rates rise.