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Netflix Beats Subscriber Forecasts as Spending Nears $8 Billion

Published on .

'Ozark.'
'Ozark.' Credit: Netflix

From Germany to Brazil, Netflix stormed ahead in its drive to create a global TV network, scoring the video-streaming provider's best third quarter on record and sending the shares to a new high.

Shows such as thriller "Ozark," starring Jason Bateman, "American Vandal," a spoof of true crime shows, and a Jerry Seinfeld stand-up special helped lure 4.45 million new customers abroad and 850,000 in the U.S., both ahead of estimates. They came at a cost. The company is paying $6 billion for programming in 2017 and said Monday it'll increase that by as much as a third next year.

The tricky part for Netflix is balancing its push for subscriber growth with the need to cover its soaring programming budget. This month, Netflix raised prices by $1 a month, or 10 percent, for its most popular plan in the U.S. and U.K., funds that will help defray its soaring programming costs. In the past, price increases have led to more customer turnover. Growth slowed for just that reason in 2016.

With prices rising, the Los Gatos, California-based company expects to sign 5.05 million new customers outside the U.S. in the current fourth quarter, above the 4.66 million average of analysts' projections. Domestically, the company looks to come up light, predicting 1.25 million new subscribers, compared with analysts' projections of 1.63 million.

Netflix rose as much as 4.1 percent to $211 in extended trading after the announcement before easing to $206.18. The stock gained 1.6 percent to $202.68 at the close in New York and is up 64 percent this year.

Netflix is also stepping up its programming on original shows in other languages. The company just released its first Italian original series, "Suburra," and will release programs in Japanese and Germany later this year. The company's 2018 programming budget will be as much as $1 billion larger than previously forecast.

Third quarter net income more than doubled to $130 million, or 29 cents a share, the company said on its website. Revenue grew 30 percent to $2.99 billion, beating estimates.

The company's ever-growing budget for movies and TV shows worries competitors who are under pressure to up their own programming outlays while still growing profit. Investors have allowed Netflix to borrow and burn through cash to fund its growth, while punishing media stocks such as CBS Corp. and Walt Disney Co. as they've lost viewers or advertisers.

Netflix shares rose on Oct. 5, when the company announced the latest price increase, suggesting investors fear little damage this time around. Customers will be willing to pay more for a subscription because Netflix is spending more, the company has said.

-- Bloomberg News

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