Netflix adds nearly 7M subscribers in Q3

Netflix sign Los Gatos
Looking ahead to the fourth quarter, Netflix expects its operating margin will come in a 5%. (Netflix)

After missing its subscriber growth forecast in the second quarter, Netflix rebounded to outpace its third-quarter subscriber estimate by nearly 2 million.

During the quarter, the company added 6.96 million net subscribers—1.09 million new subscribers in the U.S. and 5.87 million internationally. The new subscriber total was well ahead of the 5 million net additions the company had forecast. The additions bring Netflix’s total subscriber count to 137 million (130 million paid).

Looking ahead to the fourth quarter, Netflix expects to add another 9.4 million subscribers—1.8 million in the U.S. and 7.6 million internationally.

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Along with beating its subscriber estimates, Netflix also grew its streaming revenues by 36% year over year to about $3.9 billion. Operating income reached $481 million and operating margins extended to 12%, up from 7% during the year-ago quarter.

Looking ahead to the fourth quarter, Netflix expects its operating margin will come in a 5%, down from 7.5% during the fourth quarter of 2017.

RELATED: Netflix enters uncertain Q3 after subscriber miss last quarter

“As we have written in previous letters, this sequential decline in operating margin in the second half of 2018 is due to the timing of content spend and a higher mix of original films in Q4’18 (film amortization is more accelerated than series amortization due to more front-loaded viewing),” Netflix wrote in an earnings release (PDF).

Netflix said it is hoping to achieve less quarterly variance in margins next year when it expects full-year margins to be at 13%. Moving forward, the company also said that it wants to shift focus more toward paid net subscriber additions rather than total net additions since paid subscriber growth is more steady and better reflects revenue growth.

Netflix said that starting with its earnings report in January 2019, it will only provide guidance on paid memberships. A year after that, in 2020, it will cease reporting on end-of-quarter free trial count.

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