NetfliX beats by $0.03.
- Netflix (NFLX): Q3 EPS of $0.52 beats by $0.03.
- Revenue of $1.1B in-line. Shares +5.5% AH.
Netflix uninterested in sports, keeping "open mind" on movies
- Though rumors have been afoot that the NFL will try to sell TV rights to Netflix (NFLX) or Google, content chief Ted Sarandos asserted on the Q3 CC Netflix is still uninterested in bidding for sports content.
- On the other hand, the company is interested in documentaries, and is keeping an "open mind" on films, though the pay-TV window demanded by theaters makes things difficult.
- Netflix expects another 6M U.S. streaming net adds in 2014 on top of the 6M it expects to see this year. The company sees a 400 bps improvement in its U.S. streaming contribution margin each year.
- Reed Hastings insists there's "zero cord-cutting." Is he giving an honest take, or throwing a bone to MSOs the company is reportedly trying to strike set-top deals with?
- Hastings also admitted in the shareholder letter "momentum-investor-fueled euphoria" has contributed to the huge 2013 rally delivered by his company's shares. "Some of the euphoria today feels like 2003."
- Orange is the New Black is set to be Netflix's most-watched original show by year's end.
- Shares +10.8% AH to new highs
More on Netflix: margin growth solid, content expenses to be recognized faster
- Q3 U.S. streaming margin was 23.7%, up 120 bps Q/Q and 450 bps Y/Y, and the division had a contribution profit of $166M (+10% Q/Q and +47% Y/Y). Netflix (NFLX) is guiding for a Q4 margin of 23.2%.
- The international unit had a $74M contribution loss in Q3 vs. $66M in Q2 and $92M a year ago, and a $65M loss is expected in Q4. But Q3 net adds totaled 1.44M, beating guidance of 550K-1.25M and raising the size of the international sub base to 9.19M. 900K-1.7M net adds are expected in Q4.
- Reed Hastings admits "low quality" free trial promotions in Latin America boosted Q3 international adds, and will pressure Q4 adds a bit.
- The DVD sub base fell by 360K Q/Q to 7.15M after declining by 470K in Q2. The business had a $107M contribution profit vs. $109M in Q2.
- Going forward, Netflix will amortize original content costs more quickly, due to the fact a large portion of viewing happens shortly after a show launches. Until now, shows were amortized on a straight-line basis over four years or the show's license period (whichever is shorter).
- Free cash flow was $7M in Q3 vs. $13M in Q2 and -$20M a year ago. Netflix expects Q4 EPS of $0.47-$0.73, above a $0.46 consensus.
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