October 18, 2016 / 2:11 PM / in a year

Data Dive: How Netflix got its groove back

It came down to international subscriber growth.

The folks that brought you "House Of Cards" and "Jessica Jones" added 3.2 million international subscribers, trouncing its internal estimate of 2 million by 60 percent. Netflix attributed its international success to its new original shows such as "Stranger Things" and "Narcos."

There are two risks to this strategy. One is the ever increasing cost of programming. In 2017, Netflix plans to increase its original programming to 1,000 hours from 600 this year. That won’t come cheaply. It plans to spend $6 billion on programming next year, up from $1 billion this year. The other risk is that while international subscriptions are expected to be Netflix’s engine of growth in the future, for now those subscribers are not profitable. Its third quarter loss margin was 8 percent, although an improvement from a year-earlier loss margin of 13 percent.

By contrast in the United States, Netflix added 370,000 subscribers, beating estimates by 50,000 subscribers. The U.S. is a slower growing and far more competitive market (hello Amazon Prime, Hulu and HBO Go). But the segment’s profit margin rose to 36 percent from 32 percent. The company’s internal estimate was 35 percent.

Company-wide, the company increased its average selling price by 10 percent. Put another way, they’re raising their prices without losing many subscribers.

Add it all up, you get a very happy Wall Street (unless you were short Netflix). Shares were up about 17 percent at the market open.

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