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Netflix Slips as Higher Costs Await Amid Ramp Up in Originals -Breaking

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By Dhirendra Tripathi – Netflix stock (NASDAQ:) traded 2% lower in Wednesday’s premarket as the streaming giant only just met sales expectations in the third quarter and warned of a heavy investment schedule ahead.

Margins in the current quarter will be less than half of the same period last year, the company said, as a big content release schedule results in higher amortization costs.

The company estimates free cash flow to be negative in the current quarter as it ramps up production and launches more originals. The company went slow on originals last year as shoots came to a halt during the pandemic, although the company’s cash registers still rang as people stayed home and binged on streaming.

The forecast for negative cash flow comes despite the company growing its subscriber base faster than expected. Netflix added 4.38 million net new subscriptions to close the quarter with 214 million paying users. Analysts had projected 3.86 million additions, according to Refinitiv data.

Netflix said a “mind-boggling” 142 million households had watched ‘Squid Game’, the Korean drama series that has become its most successful show ever in barely a month since its release.

However, the market expected more. Those looking for early monetization of the company’s foray into games were disappointed. The company said games will be included in members’ subscriptions and will not have advertisements or in-app purchases, so “game play is purely focused on enjoyment versus monetization.”

The company said its paid memberships in U.S., Canada – its biggest markets – and Latin America – grew more slowly. For the second consecutive quarter, Asia Pacific was Netflix’s largest contributor to membership growth with half of total paid net adds. Typically, average revenue per user outside the US, Canada and Europe tends to be lower for companies though Netflix doesn’t provide region-wise ARPU details.

Revenue in the third quarter grew around 16% to $7.48 billion. Adjusted profit per share of $3.19 was higher than estimates.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.