On Tuesday, Netflix’s stock skyrocketed up 20% after the company’s Q3 earnings were released.
Wednesday morning trading also saw an uptick in the streaming service company’s stock. However, the questions have been raised as to whether the market is overreacting, or if the Q3 earnings are a good omen of a promising financial future for Netflix.
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Adding 3.2 million subscribers globally, Netflix did much better than the original projections. Analysts were suggesting that the video provider would likely see a 2.1 million subscriber increase globally, with a 300k increase in the United States. However, Netflix added 370k members in the US and they largely attribute the surge because of the new original movies and shows.
Netflix has shifted the focus of their content to providing more original material such as Stranger Things, House of Cards, Narcos, Orange is the New Black, and Marvel’s Luke Cage. The strategic move has taken the company’s emphasis away from negotiating distribution rights and attempting to buy other network’s content.
On the negative side, Netflix came up short on their expansion plans in China in the market has 1.4 billion potential customers, according to Forbes. On Monday, Netflix sent a letter to shareholders that read, “The regulatory environment for foreign digital content services in China has become challenging.” The letter continued, “We now plan to license content to existing online service providers in China rather than operate our own service in China in the near term. We expect revenue from this licensing will be modest.”
While Netflix has proven that their strategy for original content has worked thus far, they are facing increasingly stiff competition in the streaming market. Hulu recently received a massive injection of capital from its new investor Time Warner, and Amazon announced the stand-alone Prime Video service that wil cost customers $8.99. The price will be a more competitive option than Netflix, whose monthly subscription costs $9.99.
At the Hollywood IT Summit in Los Angeles on Tuesday, Michael Smith and Rahul Telang from Carnegie Melon presented the audience with their latest book Streaming, Sharing, and Stealing. The book details how Netflix brought a unique approach to predictingi the failure or success of a new series or film.
“Perhaps markets are volatile because we still don’t understand well the value that Netflix is bringing to the entertainment value chain.” Smith said.
“Regardless, Netflix is in the midst of the industry transformation thanks to its data-driven decisions to invest in content, and that’s just too interesting for potential buyers to ignore,” Telang said.
All this being said, it will be interesting to see what new original content that Netflix develops next.
Do you think the market is overreacting to Netflix’s impressive Q3 earnings?
[H/T Forbes]
