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Five Things We’ve Learned from Netflix’s Earnings Report

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Netflix (NFLX) released its third-quarter earnings results yesterday after markets closed. The company’s revenue rose 30% YoY (year-over-year) to $5.2 billion, slightly below Wall Street’s estimate of $5.3 billion. Netflix’s EPS of $1.47 beat analysts’ estimate of $1.04. Here are five takeaways from Netflix’s earnings report.

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Netflix could continue its content investments

Netflix’s 30% revenue increase in the third quarter shows it could continue to make more money than it spends on content. Although Netflix sometimes borrows to fund its content production, the company depends on its revenue from customers to finance its content budget. In the third quarter, Netflix’s video subscriber count increased 22% YoY.

Earnings show the US remains a challenging market

The US is Netflix’s most mature market, and with that maturity comes challenges. Netflix’s earnings report shows the company added only 0.5 million US subscribers in the third quarter, yet it had projected adding 0.8 million. It also missed Wall Street’s US subscriber growth target.

The subscriber miss stemmed from customers rejecting Netflix’s recent price increases. The company lost close to 130,000 US subscribers in the second quarter for similar reasons.

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Competition now a big concern for Netflix

Netflix doesn’t expect next month’s arrival of rival video services Disney+ and Apple TV+ to put it out of business. “Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade,” Netflix said.

Although Netflix has known competition for years, it’s likely bracing for a tighter subscription video market. Netflix expects to add 7.6 million subscribers in this year’s fourth quarter, compared with 8.8 million in the fourth quarter of 2018.

Netflix’s content costs could continue to rise

Netflix has released 100 seasons of original, local-language content in 17 countries this year, and plans to step up its local language production next year to 130 seasons.

Netflix’s earnings: Cheap stuff sells

In July, Netflix introduced a cheap mobile-only plan for its customers in India. That cheap plan’s uptake is exceeding its expectations, reported Netflix in its earnings release. Netflix has also tried boosting its service uptake with price cuts in South Korea.

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