Netflix raises profit but cuts its advertising outlook
Netflix increased third-quarter revenue by 11.8 per cent and raised net income to 3.664 billion dollars. It reduced its annual advertising revenue forecast to 2.7 billion dollars after delays in developing advertising products. The company also lowered its annual free cash flow outlook and included headcount reduction expenses in its fourth-quarter margin forecast.
Economics & Markets··Morning
Revenue and earnings rise
Netflix, the video streaming company, reported higher third-quarter revenue in its October 20 results. The quarter covered the three months through September end.[1], [2]
Revenue rose 11.8 per cent to 12.874 billion dollars. Operating profit increased from 3.248 billion dollars to 4.459 billion dollars, lifting the operating margin from 28.2 per cent to 34.6 per cent. Net income grew from 2.547 billion dollars to 3.664 billion dollars. Diluted earnings per share increased from 0.59 dollars to 0.87 dollars. Management attributed revenue growth to memberships, pricing, advertising and currency movements.[1]
Advertising product delays reduce the forecast
Netflix lowered its annual advertising revenue forecast from 3 billion dollars to 2.7 billion dollars citing delays in developing advertising products. Its full-year revenue forecast was 51.1 billion dollars, 0.2 per cent below the midpoint of the previous range. The annual operating margin forecast was 31.5 per cent, compared with 29.5 per cent last year. That forecast included an approximately 30 basis point effect from headcount reductions.[1]
For the fourth quarter, the company forecast revenue of 13.442 billion dollars, an operating margin of 26 per cent and earnings per share of 0.67 dollars. The margin forecast incorporates approximately 120 basis points of expense from headcount reductions.[1]
Property transaction lowers the cash flow outlook
Quarterly free cash flow increased from 2.660 billion dollars to 2.884 billion dollars. Netflix reduced its full-year forecast from 12.5 billion dollars to 12 billion dollars citing a fourth-quarter property transaction. The company spent 4.8 billion dollars repurchasing 63.9 million shares, leaving 22.3 billion dollars of authorization. Quarter-end gross debt was 15.3 billion dollars and cash was 8.2 billion dollars. Netflix issued 1 billion dollars of bonds to prefund a fourth-quarter maturity.[1]
