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Netflix to spend up to US$8bn on content next year as it tackles rising competition

Published: 11:54 17 Oct 2017 BST

Netflix
Netflix has produced hit TV shows such as Stranger Things (cast pictured)

Netflix Inc. (NASDAQ:NFLX) plans to spend as much as US$8bn on original television shows and movies for its streaming service in 2018 after investing US$6bn this year.

The company’s strategy for investing heavily in content comes as it faces growing competition from rivals, Amazon Prime, Apple and Facebook, as well as more established businesses such as Walt Disney.

READ: Netflix shares soar as it smashes estimates by adding 5.2 million subscribers in second quarter

So far Netflix’s investment strategy seems to have paid off as it has lured in more customers with its hit shows such as Stranger Things, Narcos, Orange is the New Black, House of Cards and The Crown.

Netflix added 5.3mln subscribers in the third quarter ended September 30,  compared to analysts’ expectations of 4.5mln. It added 850,000 subscribers in the US and 4.45mln in the rest of the world.

Revenue rose to US$2.99bn from US$2.29bn the same period a year ago while net income increased to US$130mln from US$152mln.

In response to the third quarter results, which were published after the close of US markets last night, shares were up 1.88% to US$206.50 each in pre-market trading.  

Revenue to grow in fourth quarter with more subscribers 

The company said it expects revenue to rise to US$3.27bn in the fourth quarter and is on track to exceed US$11bn in 2017. It forecasts it will have added 6.30mln subscribers in the fourth quarter, including 1.25mln in the US and 5.05mln internationally.

Net income is projected to rise to US$183mln in the final quarter.

“As we move into 2018, we aim to achieve steady improvement in international profitability and a growing operating margin as our success in many large markets helps fund investments throughout Asia and the rest of the world,” Netflix said.

Netflix continues to burn cash as it invests in content

However, the group was in negative free cash flow of US$465mln in the third quarter, compared to US$506mln last year, on the back of its spending on content.  Netflix said it expects to finance its capital needs in the debt market.

Netflix’s mounting cash costs for streaming programming, which has doubled in two years, has raised concerns among some investors.

“It’s hard to play devil’s advocate with clearly an impressive set of numbers, however one note of caution is that Netflix’s content costs are set to rise to a mammoth $7-8bn next year,” said Vinay Sharma, senior trader at ayondo markets.

“The risk is that if one of its competitors, whether it be Amazon, Disney or even Apple steps up its game in this sector, then Netflix’s high costs could really start to become a major problem, leading to a loss of market share.”

Disney has announced plans to launch its own streaming services after pulling movies from Netflix, Apple is reportedly planning on spending US$1bn on original content and Amazon is streaming NFL games while its Prime Video service has gone global. Facebook has also launched its Watch tab for original videos.

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