Netflix is a Rorschach test for investors. Do they look at the company’s financials and see a sensible bet on a promising future or a disaster waiting to happen?
For the second consecutive quarter, Netflix added fewer than half a million net new subscribers to its web-streaming service in the U.S. That was the worst stretch of net customer additions in five years. But the company signed up more customers than it had forecast in the third quarter, and it expects the new sign-ups to perk up in the fourth. Netflix’s big bet on international expansion also appears to be going well, with a better-than-expected 3.2 million net new subscribers.
Netflix’s Free Cash Flow in Last 12 Months -$1.2 billion
The healthy subscriber gains support Netflix’s contentions that it had hit a temporary hiccup in customer growth because of recent price changes that resulted in an effective price increase of $1 or $2 a month for many people. Netflix said it added more customers than it expected primarily because of “excitement around Netflix original content.”
The company’s stock price, which had hit a rough patch after a stellar 2015, soared about 19 percent in after-hours trading.
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.