Netflix Inc. (NASDAQ:NFLX) is expected to report another strong increase in subscribers in the third quarter as the paid streaming company invests heavily in original content amid growing competition.
In July the group said it added 5.2 million streaming subscribers in the second quarter, including 1.07 million in the US and 4.14 million overseas, smashing analysts’ forecasts of 3.2 million.
The company guided to a further 750,000 net adds in the US and 3.65 million internationally for the third quarter. It predicted a US$576mln profit from its domestic streaming operation and US$30mln from international while total revenue is expected to rise 30% to US$2.97 billion. Earnings are forecast to jump to 32 cents a share from 12 cents a year ago.
The third quarter has been supported by the popular debut of superhero series Marvel’s The Defenders and the new season of drug trafficking TV programme Narcos.
In September, Netflix cleaned up at the Emmy awards with wins for Stranger Things, The Crown, House of Cards, Master of None, and Unbreakable Kimmy Schmidt, among others.
Netflix price hike unlikely to deter customers
Analysts expect the group’s strategy for investing in original content will continue to pay off and that its announcement of a price increase in the US and the UK in October is unlikely to deter customers.
Netflix is spending US$6bn this year on content for its service and plans to raise that to US$7bn next year.
It is not the only one pumping money into content with Amazon said to be spending about US$4.5bn this year and Apple reportedly putting aside a budget of US$1bn for next year.
Negative cash flows expected as Netflix invests in content
However, Netflix has been burning cash to support its investments and expects negative cash flow of as much as US$2.5bn in 2017 with more losses coming in the years ahead.
Analysts estimate negative free cash flow US$556 million in the third quarter.
To support its investment plans, the company has raised funds with a US$1bn US bond sale last October, a US$1.4bn euro-bond sale in April and a deal in July for a US$500mln credit line.
"When we produce an amazing show like Stranger Things, that's a lot of capital up front, and then you get a payout over it over many years," chief executive Reed Hastings explained at the second quarter results. "And seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest."
Netflix releases its third quarter update after the closing bell in the US.
Shares rose 0.63% to US$200.74 each in early US trading.