Summary
Netflix Inc. reported strong performance for the third quarter of 2018, driven by robust global paid streaming membership growth. Total revenues surged 34% year-over-year, fueled by both domestic and international segments. The international segment, in particular, demonstrated impressive revenue growth of 49%, now accounting for 50% of total streaming revenue, highlighting its increasing importance. This expansion was supported by significant investments in original content and marketing, leading to a substantial increase in operating income and margin. Despite increased content and marketing expenses aimed at fueling growth, the company maintained a healthy operating margin. Management's core strategy to grow its global streaming membership business within operating margin targets appears to be on track. However, investors should note the significant and growing streaming content obligations, which represent a substantial future cash outflow. The company continues to utilize debt financing to fund its growth, with long-term debt increasing considerably. While liquidity appears sufficient for the next twelve months, the projected future negative free cash flows due to aggressive content investment warrant careful consideration.
Financial Highlights
46 data points| Revenue | $4.00B |
| Cost of Revenue | $2.53B |
| Gross Profit | $1.47B |
| R&D Expenses | $308.62M |
| Operating Income | $480.67M |
| Interest Expense | $108.86M |
| Net Income | $402.83M |
| EPS (Basic) | $0.09 |
| EPS (Diluted) | $0.09 |
| Shares Outstanding (Basic) | 4.36B |
| Shares Outstanding (Diluted) | 4.52B |
Key Highlights
- 1Global paid streaming memberships grew by 25% to 130.4 million by the end of Q3 2018.
- 2Consolidated revenues increased by 34% to $3.999 billion, with international revenue up 49% to $1.973 billion.
- 3Global operating income saw a significant increase of 130% to $480.7 million, improving the operating margin to 12.0% from 7.0% in the prior year.
- 4Domestic streaming revenue grew 25%, driven by an 11% increase in paid memberships and a 13% rise in average monthly revenue per paying member due to price changes and plan mix shifts.
- 5International streaming segment contribution profit grew by a remarkable 442% to $338.1 million, with revenue up 49%.
- 6Streaming content obligations increased to $18.6 billion, indicating substantial future investment in content, with a significant portion due beyond one year.
- 7Non-GAAP free cash flow for the nine months ended September 30, 2018, was negative at $(1.704) billion, reflecting significant upfront content investments.