Streaming video leader Netflix, Inc. (Nasdaq: NFLX) reported third-quarter earnings after the bell on Monday. Revenue, guidance and subscriber growth all beat expectations while earnings missed expectations, and NFLX stock added about 2 percent in initial after-hours trading.
The initial rise continues an absolutely stellar run for Netflix shares, which, before Monday's earnings report, had gained 63 percent in 2017, 100 percent in the last year and over 2,100 percent in the last five years. The stock market is an amazing place for growth, but it doesn't get much better than that.
In the third quarter, earnings per share came in at 29 cents, up from 12 cents in the same quarter a year ago. Analysts expected NFLX stock to post EPS of 32 cents last quarter.
Revenue rose just over 30 percent to $2.99 billion, slightly higher than the $2.97 billion that analysts expected.
As for subscribers, Netflix added 5.3 million of those, including 4.45 million international subscribers, much higher than the 3.65 million overseas additions the company forecast last quarter. Domestic subscriber growth was lower than expected at just 850,000.
"It may be time to start taking Netflix's cost of acquisition into account as they push the boundaries of the marketing in the U.S.," says Greg Portell, lead partner at global consulting firm A.T. Kearney.
There was more good news when it came to Netflix's guidance for the fourth quarter: The company projected 41 cents in earnings per share on $3.27 billion in revenue, both meaningfully higher than consensus expectations. Going into Monday's announcement, analysts were expecting Q4 EPS of 33 cents and revenue of $3.15 billion.
Needless to say, if you own Netflix stock there's still plenty left to get you excited.
Price hike ... for a reason. In early October, Netflix did something that NFLX stock owners loved: it raised prices. The price of a "standard" monthly subscription, which allows HD videos and streaming on two screens at once, went from $9.99 to $10.99. The premium subscription, which allows Ultra HD and streaming on four screens at once, rose $2, from $11.99 to $13.99. The hikes only affected U.S. customers, but there are quite a lot of those -- more than 50 million of them, in fact.
The market responded by bidding Netflix stock 7 percent higher in two days. There were a few main reasons shareholders applauded the move.
First, many Americans echo the sentiment of CNBC's Jim Cramer, who has praised Netflix as one of those rare services that may actually have plenty of room to increase its price without a meaningful demand backlash.
Secondly: Netflix desperately needs to fund its rabid appetite for new content, much of which it now produces. Netflix plans to spend $6 billion on content in 2017.
Of course, original content -- like the surprise hit "Stranger Things," which returns for a second season on Oct. 31 -- is precisely what makes NFLX so special.
"The key to Netflix's ability to raise prices is its skill at developing programs that are based on its insights into customer tastes," says Peter Cohan, lecturer of strategy at Babson College and author of the book "Disciplined Growth Strategies."
As long as Netflix can create compelling, geo-targeted content in different places around the world, "it will be able to raise prices enough to cover the investment," Cohan says.
Remember the concerns. On Wall Street, it never pays to get caught up in a romance with your holdings that can't be broken. Newsflash: Your stocks don't care about you. NFLX, despite how good it's been to long-term shareholders, is no different.
For shares in this all-out growth stock, the main concerns are valuation and competition. On a valuation basis, Netflix stock has looked absurdly overpriced for years now, but the market seems to continually prove the haters wrong. Still, with a forward price-to-earnings ratio of 93, it's just something to keep in mind. If there's a broader market pullback, NFLX could be a major casualty.
From a business perspective, the industry continues to be cutthroat; HBO and Amazon.com ( AMZN) aren't going anywhere, and continue to create their own award- and eyeball-winning content. In CEO Reed Hastings' mind, anyone that takes away screen time from Netflix is a competitor, which makes the competitive landscape rather large and implies rivalries between other Silicon Valley hotshots like Facebook ( FB), Alphabet ( GOOG, GOOGL), Twitter ( TWTR) and Snap ( SNAP).
What's certain is that companies with cable assets definitely consider Netflix a competitor, with shares of both Walt Disney Co. ( DIS) and AT&T ( T) recently suffering due to subscriber losses as a result of trends like cord-cutting. It could be that competition that inspired Disney to announce it will no longer license new Disney releases to Netflix, beginning in 2019, opting to start its own streaming service instead.
"It will be interesting to hear what Netflix may be willing to share about their plans for content post-Disney. Netflix has a strong content engine, but it's hard to match the strength of Disney's content as a hook for subscribers," Portell says.
Sure, the company's Q3 report isn't quite the earth-mover the NFLX Q2 2017 earnings report was, but at least shareholders know one thing: Netflix never fails to entertain.
John Divine is an investing reporter for U.S. News & World Report, where he covers financial markets and the economy, with a focus on individual stock analysis. He has been an investor himself for over 10 years, and has been writing professionally about stocks and investing for the last five years. He previously wrote about the stock market for The Motley Fool and InvestorPlace, and his work has appeared on Yahoo! Finance, MSN Money, and AOL DailyFinance. He graduated from Appalachian State University in 2011 with a bachelor's degree in finance and banking. At Appalachian, he was a member of the Bowden Investment Group, a team of students that ran a real-money portfolio worth over $100,000. You can follow him on Twitter or give him the Tip of the Century at email@example.com.