Netflix, Inc. (NASDAQ: NFLX) shares are surging after the company revealed it blew through its subscriber-growth estimate during its second quarter earnings report on Monday.
The California-based company ended the quarter with nearly 104 million subscribers globally. It added 5.2 million users in total, far more than the 3.2 million it had projected, and Wall Street’s estimate of 3.5 million net additions.
With Netflix's "growing distribution ecosystem and expanding addressable base, we believe that it remains on track in building out an unmatched global entertainment platform," Goldman's Heath Terry wrote in a note to clients Tuesday.
The streaming giant is one of the market's best-performing names as its shares have rallied more than 30 percent this year through Monday versus the S&P 500's 10 percent return. Netflix shares opened up 9 percent Tuesday morning to a new all-time high. Revenue jumped 32 percent to $2.79 billion. The company’s operating profit margin globally was 4.6 percent, down from 9.7 percent in the first quarter.
Netflix has indicated to Wall Street it would like to be judged primarily based on its revenue and global operating-profit margins, as opposed to metrics such as its subscriber additions. But many investors have remained focused on subscriber growth as a proxy for long-term financial health.
"We continue to recommend owning NFLX. The company's global scale and ability to mass-personalize content and marketing is fueling subscriber growth that few competitors are positioned to match," KeyBanc Capital's Andy Hargreaves wrote in a note to clients Monday. "This should fuel revenue and subscriber growth at least in line with expectations while expanding barriers to entry."
In a letter to shareholders, Netflix said it underestimated the popularity of its growing slate of programming, which led to higher-than-expected subscription growth across its major markets. This year, Netflix programs got 91 Emmy Award nominations, up from 54 in 2016, according to Cantor Fitzgerald, including best drama nods for Stranger Things,The Crown and House of Cards.
Netflix posted a second-quarter profit of $66 million, or 15 cents a share, compared with a profit of $41m, or 9 cents a share, in the same quarter last year. The company expects to keep up strong momentum in the third quarter, projecting 4.4 million subscriber additions, but warned that it has over-forecast in the past, and that some subscriber growth could have been pulled forward into the second quarter.