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Netflix and thrill

Remote control with Netflix button

The Netflix share price popped higher in after-hours trade, rebounding from 5-month lows after posting a better-than-expected set of Q3 numbers, and upbeat Q4 guidance.

With the shares down over 25% from the July peaks the bar was probably quite low when it came to market reaction to the numbers, with the challenge today being whether the bounce after-hours is sustained when US markets reopen later today.

Netflix share price YTD

Source: CMC Markets

Last night’s earnings report saw the streaming giant post revenues of $8.5bn, while profits beat expectations coming in at $3.73 a share, above forecasts of $3.52, while adding 8.76m new subscribers, well above forecasts of 5m.

Total subscribers now sit at a record 247.15m, as Netflix continues to fend off its competitors of Disney, Paramount, and Amazon, while free cash flow rose to $1.89bn, not altogether that surprising given that due to the writers and actors strikes, given that payments for new content was always likely to be lower.

The ads business has also seen membership rise 70% quarter over quarter, although it’s not immediately clear how revenue accretive that area of the business is.

Operating margins rose to 22.4%, while raising their forecast for full year operating margin to the top end of the 18%-20% range.

Netflix also raised its forecast for end of year free cash flow to $6.5bn from $5bn.

For Q4 Netflix says it expects to see revenues of $8.7bn, a rise of 11%, with net additions in line with Q3, although they said this could be affected by a $200m FX effect drag due to a stronger US dollar.

The company also added that prices would be going up in the UK, US, and France for their Basic and Premium offerings, while the ads and Standard plans remain unchanged.

Profits are expected to come in at $2.15c a share, a big increase on the $0.12c a share from the same quarter last year, probably due to lower spend on content due to the writers and actors strikes, which in turn has helped improve cashflow.

On that matter the penny finally appears to have dropped that they need to adopt an FX hedging program given that 60% of their revenue is non-US dollar based and is likely to increase over time, the puzzle is why it has taken them so long.

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