Netflix had a strong third quarter, boasting total revenue of $5.2 billion, a 31.1% increase year-over-year. The company also reported solid membership growth of 6.8 million in paid net additions, down slightly from Netflixs forecast of 7.0 million, but an increase over Q3 2018s paid net adds of 6.1 million members. The Q3 membership increase was 12%, a record for Netflix in the third quarter. Netflix now has 158.33 million paid global memberships, a 21.4% increase year-over-year.
As weve improved the variety, diversity and quality of our content slate, member engagement has grown, revenue has increased, and were able to further fund our content investment, said Netflix in its October 16 shareholder letter.
Other highlights from the quarter include:
- Average streaming paid memberships grew 22% and ARPU grew 9% year-over-year.
- Operating income for the quarter was $980 million, and operating margin was 18.7%.
- Net income was $665 million, or diluted earnings per share of $1.47.
One key to Netflixs long-term success is its ability to deliver quality content to attract and retain subscribers.
We strive to program Netflix with the best variety of high-quality content across many genres (scripted series, films, docs, comedy specials, unscripted TV, kids & family, anime, etc.). Our ambitious approach reflects our goal to satisfy the entertainment desires of our 158m-plus members and to attract as many of the hundreds of millions of non-members as we can. To accomplish this, we need great breadth of quality content because people have very diverse tastes, said Netflix.
In its shareholder letter, Netflix outlined some of its strategies, including a stronger focus on original content. This strategy has worked on two fronts. Netflix is anticipating the loss of second run content as other streaming services pull content previously licensed to the streaming giant. Also, Netflix Originals like Stranger Things, Explained, Narcos, Nailed It, Mindhunter and new limited series like Unbelievable.
Products, partnerships and new experiments have also been successful for Netflix. For example, we wrote recently about Netflixs lowering its prices for a mobile-only version in India and Netflix giving free access to the pilot episode of Bard of Blood. Netflix said that its testing in India has proven to be more successful than originally anticipated, paving the way for more content that appeals to Indian viewers.
While Netflixs Q3 results were not a surprise, various media outlets have questioned whether Netflix could continue its reign as a top streaming provider as new services like Disney+ and Apple TV+ come online. Netflix does not seem concerned about the so-called streaming wars which have been waged for years. While more competitors are entering the streaming market, Netflix is focusing on its unique selling proposition and doing what it does well, not getting as hung up about the competition as others seem to be.
While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world, said Netflix, confident in its ability to sustain itself in the face of competition.
The launch of these new services will be noisy. There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long-term, though, we expect well continue to grow nicely given the strength of our service and the large market opportunity, Netflix added.
In the week leading up to the earnings report, Netflixs stock value inched up, but it has not changed dramatically since being reported yesterday. On October 9, Netflix stock was valued at $267.53. At the end of the day yesterday, Netflix stock was valued at $286.28 per share.
Despite the growing competition in streaming services, Netflix has its winning formula nailed down – it is all about content and giving viewers what they want to see. Pricing and user experience are sometimes factors, but Netflixs award-winning originals appeal to viewers from all over the world. Netflix continues to invest in quality content and to identify what types of content people in different parts of the world really want to see. New services will need time to develop their own winning formulas. For now, we think Netflix will continue to reign.