Why Netflix surged

Netflix stock continues to surge, with a rise of as much as 8% on Thursday

This comes after the shares changed hands as much as 11% higher overnight. Yet the group’s hotly anticipated earnings were decidedly mixed. In fact, if investors had to come up with the ideal quarterly report in order to justify the purchase of more shares in the streaming video giant, its Q3 results out last night probably wouldn’t cut it. Check out the misses - and spot the handful of important beats – below. (All forecasts via Bloomberg.)

• U.S. streaming paid net additions: up 520,000 vs. estimate of 798,360 rise
• International streaming net additions: +6.26 million vs. +6 million est.
• Revenue: $5.24bn, up 31% y/y, est. $5.25bn
• EPS: $1.47 vs. $1.05 est.

Netflix also provided guidance on the current quarter (Q4) that will see investors revising expectations lower.

• Revenue: $5.44bn, est. $5.51bn
• EPS 51c, est. 82c
• U.S. streaming paid additions: +600,000, est. +1.28 million
• International streaming paid additions +7.00 million, est. +8.04 million

Disparate estimates may account for some of the reaction. For instance, some well-known consensus sources had projected international subscriber growth of 6.9 million, whilst pointing to a rise of around 860,000 in the states.

At root though, what with investor fears about a flood gate of looming competition (including Disney+) whilst subscribers appeared set to top out, NFLX’s quarter showed solid growth and rising earnings. CEO Reed Hastings acknowledged upcoming competitive threats, though said they posed a “moderate” headwind. Critically, the group is sticking to cash generation plans, the key path to eventual profitability. The free cash flow loss is still expected to be reduced to minus $3.5bn in 2020’s financial year.

In other words, the world’s dominant streamer remains in as good financial health as can be expected as its competitive landscape changes. That made the stock’s 20% fall in the year up to last night begin to look excessive. To be sure, growth will still come at a cost that can yet a possible share recovery at risk. For now though, investors continue to buy its confirmed growth story.