Streaming giant Netflix reversed a series of setbacks, with the shares zooming 14 percent on Tuesday, spurred on by the reassurance that the company is expected to add as many as 4.5 million customers in the fourth quarter.
Netflix shares plummeted last April when the streaming giant reported a first ever global decline in subscriber numbers. Shares plunged 25 percent on a single day, nosediving from $348 to $226 in one single day after data showed the customer base shrank by 2,00,000 subscribers during the January-March period.
Done with Shrinking Quarters
The share sell-off continued in the months that followed, hitting a low of $166 levels before stabilizing. On Tuesday the stock closed at $240.86, compared with $587.37 at the beginning of the year. As the shares lost more than half its value, investors lost more than a cumulative $150 billion.
The latest share surge followed Co-CEO Reed Hastings's statement that the company is 'done with shrinking quarters' and that it will continue the momentum by focusing on content and reorienting strategy to lower-priced, advertising-driven subscription plan.
Data showed that Netflix added 2.4 million new subscribers worldwide from July to September. This was better than the expectations of Wall Street. "Netflix's impressive numbers show the company's growth story is far from over," Investing.com analyst Haris Anwar said, according to Yahoo Finance.
Netflix's revenue in the third quarter was $7.9 billion, up 6 percent from a year earlier and topping analyst projections. Earnings per share stood at $3.10.
The company's projection that it will add 4.5 million new customers by the end of the year was better than the estimates of Wall Street, where analysts' average forecast was that Netflix would add 4.2 million new customers.
Launching Ad-Based Model
Last week, JPMorgan analysts said that Netflix will be able to attract 7.5 million subscribers when it launches its ad-supported tier in its US and Canada segments in the next year. This will account for about $600 million in new advertising income, a client note issued by JPMorgan analyst Doug Anmuth said. The analyst said Netflix's revenue from an ad-supported tier will be a whopping $2.65 billion. This service will have some 22 million subscribers at that point, the analyst said.
Netflix is launching the $7-per-month streaming plan in November. "We're quite confident in the long term that this will lead to a significant incremental revenue and profit stream," Chief Product Officer Greg Peters said.