• Television   series, documentary and movie streaming colossus, Netflix, reported third   quarter results which beat analysts’ subscriber and earnings estimates. Global   paid net subscriber additions came in at 4.4 million, topping forecasts for   3.84 million subs. The company ended the period with 214 million paid   memberships, up from 209 million in the prior quarter, and from 195 million   in the comparable year-ago quarter.

  • This   is a result of the positive effects of a stronger content slate in the second   half of the year, after lighter-than-normal scheduling in Q1 and Q2 due to   Covid-related production delays last year.

  • Total   revenue for Q3 2021 increased 16.3% year over year to $7.48 billion, in line   with market expectations. Revenue growth was driven by a 9% increase in   average paid streaming memberships and a 7% improvement in average revenue   per membership (ARM). ARM was up quarter on quarter in all jurisdictions except   for Europe where it remained flat. For the second consecutive quarter, the   Asia-Pacific region was the largest contributor to membership growth.

  • The   operating margin for Q3 expanded by three percentage points to 23.5% relative   to the year-ago period. This was due to the timing of content spend, as well   as lower than forecast marketing costs. As a result, earnings jumped 83.3%   year-over-year to $3.19.

  • The   co-CEO and founder, Reed Hastings, said the fourth quarter will be the   strongest content offering yet and is forecasting paid net adds of 8.5   million. This means a bigger content expense for the quarter, as well as   lower operating margins, of around 6.5%, due to the back-loaded release   schedule.

  • Free   cash flow (FCF), the cash a company generates after accounting for cash   outflows to support operations and maintain its capital assets, for the third   quarter was -$106 million vs. $1.1 billion in Q3 2020. This was due to the   high base in Q3 last year as result of the Covid-related production   shutdowns. Year-to-date FCF is a positive $410 million and is expected to be   breakeven for the year. Netflix then anticipates being FCF positive on an   annual basis in 2022 and beyond.

  • The   streaming giant also announced it would use new metrics for reporting   viewership going forward. It will report hours viewed rather than the number   of accounts that watched a specific show, to match how outside services   measure viewership. And Netflix will also release title metrics more   consistently outside of results reporting periods.

  • Netflix   is a high-quality business which is dominating the streaming industry with   its content spend. It just won the most Emmys ever for any single network or   service in a single season of television, taking home 44 golden statues. At   the same time, it is also evolving to capitalize on merchandising and gaming   opportunities arising from the library of successful titles it rolls out.   Netflix is also no longer in need of external financing to fund day-to-day   operations. And despite returning $100 million to shareholders via share   buybacks, Netflix still prioritizes reinvestment of cash back into the core   business and to fund new growth opportunities. The share is up 25% this year   and is trading on a hefty multiple of 59x earnings. We are holders of the   stock for the long term in the Cratos BCI Worldwide Equity Fund.