If you predicted that Netflix couldn’t get any better in the third quarter, we’d say Stranger Things have happened…and they have. Yesterday Netflix (NASDAQ: NFLX) reported strong Q3 financials with a 33 percent increase in global streaming revenue and the addition of 5.3 million new memberships globally, a 49 percent increase year over year. This is considerably higher than the 4.4 million net additions Netflix had forecast. Year-to-date, Netflix has added 15.5 million new members (net), a 29 percent increase year over year.

In addition, operating income nearly doubled to $209 million, compared to the same period in 2016, and the company’s 7 percent global operating margin has the streaming giant on pace for a 7 percent operating margin for the full year.

‘We are growing nicely across the world and are on track to exceed $11 billion in revenue in 2017,’ said Netflix in its shareholder letter. ‘Internet entertainment is delighting consumers, and we are staying at the forefront of this once-in-a-generation opportunity.’

Other highlights for the third quarter include:

• Total revenue, including revenue from DVD rentals, was $2.99 billion, representing growth of 30.3 percent.
• Total streaming revenue was $2.88 billion, representing growth of 33.2 percent.
• Netflix had 109.25 total members, including 104.02 paid memberships and net additions of 5.3 million.
• Average paid memberships increased 24 percent year over year.
• Net income was $130 million.
• Diluted earnings per share were $0.29.

‘We added a Q3-record 5.3 million memberships globally (up 49 percent year over year) as we continued to benefit from strong appetite for our original series and films, as well as the adoption of internet entertainment across the world,’ said Netflix.

During the third quarter, Netflix launched several new series including Ozark, Friends from College and Marvel’s The Defenders, and additional seasons of popular series Narcos and Fuller House. Coming this quarter is another fan favorite, Stranger Things, which returns for a second season on October 27, as well as the second season of The Crown.

In August, Disney announced that it would pull content from Netflix in 2019 to launch its own streaming service. Though Netflix didn’t specify Disney by name, they addressed long-term licensing and content plans.

‘Investors often ask us about continued access to content from diversified media companies. While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,’ Netflix said. ‘Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes.’

To back that up, Netflix said that, in 2017, the company’s investments in Netflix original content representing more than one-fourth of their total P&L content budget.

‘Just as we moved from second-run content to licensed originals and then to Netflix-produced originals, we are progressing even further up the value chain to work directly with talented content creators,’ Netflix said.

This includes deals with Shonda Rhimes of Scandal and Grey’s Anatomy fame and the acquisition of Millarworld. In spite of that, Netflix understands that it must continue to lead the streaming TV and movie revolution.

‘It’s an exciting period and both media and technology companies see the same big opportunity as we do,’ Netflix said. ‘We have a good head start, but our job is to improve Netflix as rapidly as possible to please our members by earning their viewing time and to stay ahead of the competition in the decades to come.

For the fourth quarter, Netflix forecasts global net additions of 6.30 million, including 1.25 million U.S. members and 5.05 international members. Other guidance includes:

• Revenue of approximately $3.27 billion, representing year over year growth of 32.1 percent
• Operating income of $238 million
• Operating margin of 7.3 percent
• Net income of $183 million
• Diluted earnings per share of $0.41.

A little less than two weeks ago, Netflix announced price increases in two of its three subscription plans. This could affect new additions and retention, but we don’t anticipate it will have a significant impact.

Though it is early yet, Netflix investors seem pleased with the news. On Friday, October 13, Netflix stock closed at $199.49. As of 7:59 PM Eastern yesterday, Netflix stock was valued at $202.68 per share.

Insider Take:

We are big fans of Netflix, who transitioned their business model from DVD rentals to streaming video on demand long before it was popular. The company has continued to grow and adapt their offerings to set the stage, literally, for exclusive content including their own original programming.

They didn’t skip a beat when they learned that Disney would bail on their agreement in 2019, and they made the difficult decision to raise prices for the first time in two years to help cover their ongoing licensing and content production costs. Their financials continue to be solid, and they are growing beyond their own forecast. We anticipate they’ll finish 2017 on a high note, positioning themselves for a strong start to 2018.