Netflix Surges After Smashing Subscriber Expectations, Guides Higher; Cash Burn Soars

Netflix stock has surged after hours, soaring above its all time high price, and up 8% after reporting Q2 numbers which while beating slightly on revenues ($2.79Bn, Exp. $2.77Bn), and missing modestly on Earnings ($0.15, exp. $0.16), were far more remarkable for the subscriber numbers which smashed expectations as follows:

  • Q2 net streaming additions 5.2 million, Exp. 3.27 million
  • Q2 domestic net streaming additions 1.07 million, exp. 633K
  • Q2 international net streaming additions 4.14 million, exp. 2.63 million

Just as impressive was Netflix' outlook, which now expects Q3 net streaming adds of 4.4 over 400K more than the consensus estimate of 3.99 million. The company expects $2.97 billion in Q3 revenue, also above the consensus estimate of $2.88 billion, and net income of $143 million, above the est. $101.6 million.

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Less impressive were the financials: here operating margin tumbled from 9.7% in Q1 to 4.6% in Q2 as a result of a $245 million sequential increase in cost of revenues.

Furthermore, the company is back to its record cash burning ways, reporting that in Q2 it burned a record for the quarter $608 million, just why of its worst cash burn quarter in history when it burned $639 million in Q4 of 2016.

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From Netflix' letter:

In its quarterly letter, Netflix writes that In Q2 "we underestimated the popularity of our strong slate of content which led to higher-than-expected acquisition across all major territories. As a result, global net adds totaled a Q2-record 5.2 million (vs. forecast of 3.2m) and increased 5% sequentially, bucking historical seasonal patterns. For the first six months of 2017, net adds are up 21% year-on-year to 10.2m.

Our Q3 guidance assumes much of this momentum will continue but we are cognizant of the lessons of prior quarters when we over-forecasted and there was lumpiness in net adds, likely due to demand being pulled forward (into Q2 in this case)."

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