Netflix added an extra 5.3 million subscribers worldwide in the third quarter, which is an increase of 49%, when compared to the same quarter last year. The increase is believed to be due to the worldwide strong appetite for its original series and films, especially on the Internet.
Netflix wrote a letter to shareholders stating that it had underestimated the growth, both in and outside of the US. The letter also stated that year to date net, Netflix has added of 15.5 million subscribers, which is up 29% when compared to last year.
Global streaming revenues in the third quarter rose 33%, compared to the same quarter last year, which was driven by a 24% increase in average paid memberships and 7% growth in average selling price. Also, operating income nearly doubled to $209 million with its third-quarter global operating margin of 7%, putting it on track to achieve its 7% full-year target. The domestic contribution margin in the third quarter was 35.8% compared to 36.4% last year, which was below its forecast of 37.1%.
For the fourth quarter, Netflix forecasts global net adds of 6.30 million (1.25m in the US and 5.05m internationally), which is down from the 7.05 million in the same quarter last year.
Netflix recently announced price adjustments in many markets for HD and 4K video plans while keeping our SD plan mostly unchanged (still $7.99 in the US). Netflix will notify existing members of any price adjustments.
Netflix sees its future largely lying in exclusive original content and investment in originals is over a quarter of Netflix’s total profit and loss content budget this year. Netflix has $17 billion in content commitments over the next several years and a growing library of owned content ($2.5 billion net book value at the end of the quarter). The company is also committed to spending $7-8 billion on content (on a profit and loss basis) next year.
