Netflix Tops 130M Paid Subscribers Worldwide

All is right again in Netflix's world.

After whiffing in Q2, Netflix Inc. (Nasdaq: NFLX) soundly beat its subscriber forecast in Q3, causing shares to rise more than 11% in after-hours trading Tuesday.

Aided by its slate of original programming, Netflix said its global subscriber base surpassed 130 million paid subs, and 137 million overall (free-plus-paid).

Netflix added 1.09 million total subs to its US base for a total of 58.46 million while adding 5.87 million internationally, extending that total to 78.64 million.

Netflix continues to have trouble getting a grip on the ebb and flow of its global subscription business. While Netflix's Q2 results missed expectations, it underestimated Q3 results, as total net adds of 7 million subscribers, up 31% from a year ago, was well above its forecast of 5 million for the period. Netflix's Q3 subscriber results were a record for the OTT service. (See Netflix Is Growing, but Don't Ask by How Much.)

In its Q3 letter to shareholders (pdf), Netflix blamed the variance on greater-than-expected customer acquisitions globally, including solid growth in Asia.

For Q4, Netflix is predicting paid net adds of 7.6 million and total net adds of 9.4 million.

And Netflix signaled that there's some change coming with how it reports subscriber results as part of an effort to improve its prediction capabilities. Starting in Q4, it will put more emphasis on paid net adds, noting that those results are "more steady" while totals that factor in free trials tend to skew the numbers.

By way of example, Netflix's Q2 paid net adds was off by 11%, versus a 17% variance for total net additions that were forecast. With that in mind, Netflix will only guide to paid memberships, starting with earnings to be posted in January 2019, and, in 2020, will stop to report its end-of-quarter free trial count.

Netflix is also adjusting its content output to comply with some international rules. The European Union is rewriting its audio-visual rules in a way that will eventually require subscription streaming services to devote a minimum of 30% of their catalog to European works.

"We anticipate being able to meet these requirements by evolving our content offering," Netflix said.

"Overall, this was a strong quarter for the company," independent industry analyst Paolo Pescatore noted in his reaction to Netflix's bounce back, adding that Netflix's strong international growth is encouraging.

But he also believes that, despite a return to normalcy, Netflix will need to lean on its growing list of distribution partners, which increasingly include cable operators.

"Normal service has been restored… This was a key quarter for the company following the challenges of the prior one which was a one-off and largely down to seasonality," he said, noting that Netflix, given the rising level of streaming competition it's facing, will need to "rely more than ever on its extensive cable and telco relationships."

— Jeff Baumgartner, Senior Editor, Light Reading

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