Netflix (NFLX) stock rallied on Wednesday after the internet television network smashed Wall Street's target for new subscribers in the third quarter.
XLos Gatos, Calif.-based Netflix late Tuesday said it added 2.4 million subscribers in the September quarter. Three months ago, Netflix said it expected to add 1 million subscribers in the period. Wall Street analysts were looking for 1.08 million new members. Netflix ended the third quarter with 223.1 million total subscribers worldwide.
The big subscriber increase comes after two straight quarters of subscriber declines.
For the current quarter, Netflix forecast adding 4.5 million subscribers. Analysts were looking for 4.03 million new subscribers in the fourth quarter.
However, with the scheduled Nov. 3 launch of Netflix's advertising-supported service level, the key metric for the company could shift from subscriber adds to average revenue per user, analysts say.
Netflix Stock Surges On Quarterly Beat
On the stock market today, Netflix stock jumped 13.1% to close at 272.38. During the regular session Tuesday, Netflix stock fell 1.7% to 240.86.
Netflix earned $3.10 a share on sales of $7.93 billion in the third quarter. Wall Street had predicted Netflix earnings of $2.14 a share on sales of $7.84 billion, according to FactSet. On a year-over-year basis, Netflix earnings dipped 3% while sales increased 6%.
However, Netflix's sales and earnings guidance missed views. For the current quarter, Netflix expects to earn 36 cents a share on sales of $7.78 billion. Analysts had predicted Netflix earnings of $1.19 a share on sales of $7.97 billion in the fourth quarter. In the year-earlier period, Netflix earned $1.33 a share on sales of $7.71 billion.
"After a challenging first half, we believe we're on a path to reaccelerate growth," Netflix management said in a letter to shareholders.
Netflix boasted about higher user engagement than rivals Amazon (AMZN), Walt Disney (DIS) and Hulu.
"Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard," Netflix said in its letter. "We estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix's $5 (billion) to $6 billion annual operating profit."
Netflix Stock Ranks First In Industry Group
Netflix credited hit movies and TV series for its subscriber growth in the third quarter. That new original content included "Stranger Things" season four, "Monster: The Jeffrey Dahmer Story" and "The Gray Man."
On Monday, Netflix announced a new tool called "Profile Transfer" for customers using shared accounts and passwords. The tool will allow people to transfer their profile settings when starting their own paid membership. With it, subscribers can keep their personalized recommendations, viewing history, My List and other settings.
The new feature comes ahead of a planned crackdown by Netflix on rampant account sharing on the service. That crackdown will occur in early 2023.
Netflix stock ranks first out of 21 stocks in IBD's Leisure-Movies and Related industry group, according to IBD Stock Checkup. But it has a mediocre IBD Composite Rating of 66 out of 99.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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