Wall Street Is Raving About Netflix And Its Stunning Subscriber Growth

Netflix is earning a fresh round of praise from Wall Street after it crushed expectations for subscriber growth in its latest quarter.

On Monday, the streaming giant said it added a stunning 5.2 million new subscribers in the second quarter, crushing its own expectations of 3.2 million new subscribers.

Its stock promptly surged 10%, hitting an all-time high.

Wall Street analysts rushed to applaud the company's push to deliver high-quality content, noting its ability to attract new users to the platform.

"We believe the rapidly growing content offering, led by originals that in aggregate garnered 91 Emmy nominations last week, drove the stronger new sign-ups," wrote Morgan Stanley analyst Benjamin Swinburne in a note to clients.

Original content has been key, with the buzz around hits like Stranger Things, The Crown and 13 Reasons Why convincing new users to pay for a Netflix subscription. Netflix earned twice as many Emmy nominations this year than it did last year.

"We believe 2Q17 may have been NFLX's strongest content quarter ever," wrote J.P. Morgan analyst Doug Anmuth, adding that the company's "virtuous circle" of creating new content and seeing new users sign up has continued.

Netflix is forecasting that it will add 4.4 million new subscribers in the third quarter, consisting of 750,000 U.S. subscribers and 3.65 million international subscribers. It now has 100 million subscribers, roughly half of which are located abroad.

"Given the high correlation between content and subscriber growth and the content slate in 3Q, we expect subscriber outperformance to continue," wrote Goldman Sachs analyst Heath Terry, who referred to the entertainment company's platform as "unmatched."

Netflix said its forecast for the third quarter "assumes much of this momentum will continue" from recent months. However, for its part, it acknowledged that although it tries to be accurate it has a spotty track record of predicting subscriber growth.

Netflix shares have easily outperformed the market as investors pile in and the stock is up 63% in the last year.

That rally has led some to conclude that the time has come for investors to consider taking some chips off the table. “While we remain positive in the long-term fundamental outlook of the business, including its ability to disrupt the traditional incumbents and grow international, our analysis also suggests that the current price already reflects this view,” wrote Citi analyst Mark May.

Another concern is the amount of cash that Netflix is spending on content. The company has been forthright that its free cash flow will likely be negative for many years as it invests in original shows and movies in order to attract new users. This has caused some concern among analysts and investors, yet many have come to accept it as a worthwhile cost of doing business. That's especially easy to do when it's resulting in robust subscriber growth.

As Netflix CEO Reed Hastings put it on Monday: "In some senses, the negative free cash flow will be an indicator of enormous success.”

Forbes