Netflix earnings surge on strong international growth

SAN FRANCISCO – Netflix (NFLX) shares hit a new high Monday after the video-streaming company reported strong global subscriber gains.

Netflix said it has roughly109 million worldwide subscribers, up from just over 83 million a year ago, the company said in reporting its third-quarter earnings following the close of trading. That figure includes an additional 5.3 million subscribers during the July-September period, topping analyst forecasts.

Almost all of that growth came from overseas, with the company seeing a 44 percent jump in paid memberships compared with the year-ago period, versus 9 percent for domestic subscribers.  

"We are growing nicely across the world and are on track to exceed $11 billion in revenue in 2017," Netflix said in a letter to shareholders.

Netflix reported revenue of $2.9 billion for the quarter, up more than 30 percent from the year-ago period, while net income was $130 million, up from $52 million in the comparable quarter in 2016.

Netflix's international growth strategy carries risks. The company is sinking deeper into debt in its relentless pursuit of more viewers, leaving the company little margin for error as it tries to build the world's biggest video subscription service.

The big burden that Netflix is shouldering hasn't been a major concern on Wall Street so far, as CEO Reed Hastings' strategy has been paying off.

Netflix's stock price rose $3.81, or 1.9 percent, in after-hours trading to $202.68, which last week topped the $200 threshold for the first time. The stock is up 64 percent for the year.  

The billions of dollars that Netflix has borrowed to pay for exclusive series such as "Stranger Things" has helped its service more than triple its global audience during the past four years. 

But Netflix's subscriber growth could slow if it can't continue to win programming rights to hit TV series and movies, now that there are more competitors, including Apple , Amazon, Hulu and YouTube.

If that happens, there will be more attention on Netflix's huge programming bills, and "then we could see an investor backlash," CFRA Research analyst Tuna Amobi said. "But Netflix has been delivering great subscriber growth so far."

Netflix's long-term debt and other obligations totaled $21.9 billion as of Sept. 30, up from $16.8 billion at the same time last year. That includes $17 billion for video programming during the next five years, up from $14.4 billion a year ago.

The Los Gatos, California, company has to borrow to pay for most of its programming expenses because it doesn't generate enough cash on its own. Netflix burned through another $465 million in the most recent quarter, which is known as "negative cash flow" in accounting parlance.

For all of this year, Netflix has warned that its negative cash flow might be as high as $2.5 billion, a trend that management expects will continue for at least the next several years as its service tries to diversify its video library to appeal to the divergent tastes in about 190 countries.