Netflix (NASDAQ:NFLX) is going to see some tough quarters ahead -- that much is certain. But for now, let's take a look at how this longtime growth stock performed in its most recent quarter, and how things look today -- and what that means as investors consider what lies ahead.
Below are some of the key numbers from the company's most recent earnings that stood out to me.
1. $5.2 billion in sales
The company generated year-over-year sales growth of 31% this past quarter, up from the 26% growth recorded in the second quarter. Any time you see revenue growth accelerate, it's a good sign the company is doing something right. Amid all the challenges Netflix may be facing, and even with its price increases, this latest top line figure is a testament to the strength of its service.
While revenue from its domestic streaming segment was up 25%, the international segment saw even more impressive growth of 40%, which was responsible for the higher overall growth rate. Earlier this year, the company hiked its prices for its U.K. subscribers by as much as 20%.
2. 20.2% international streaming margin
While Netflix has been investing heavily to expand internationally, those efforts haven't always been very profitable. But in the third quarter, the company's contribution margin for its international streaming segment came in at over 20%, up from just 11% in the prior-year period. And if we go back an additional year, that figure was entirely in the red.
Contribution margin is important for the company, as it indicates just how much a segment is making after its related cost of revenue and marketing expenses.
3. 104% improvement in operating income
During the quarter, the company more than doubled its operating income to $980 million, more than Netflix reported in all of 2017. Not only did sales grow 31% year over year, but the company's operating margin of 19% showed a major expansion from the 12% it recorded last year. That was partly due to the company's marketing expenses, which saw only a nominal increase of 9% from the previous year.
And that's a good sign, as it suggests the company's customer loyalty and brand recognition are stronger than ever, with less of a need to spend heavily on marketing to grow the top line.
4. 6% increase in domestic paid memberships
The one glaring concern for investors is the minimal growth the company has achieved in the domestic market. With just a 6% year-over-year increase in the number of subscribers, it's clear that growth in the company's home market has dried up. And that's even before major competition comes online later this year. In the first quarter, the company had 60.2 million paid memberships, and that's risen to only 60.6 million in the latest quarter, nearly flat over a six-month period.
On the surface, Netflix had a good quarter, with sales and profit numbers to keep investors happy. But without price increases, the business would have looked very different, and the most telling number may have been its paid memberships, which in the domestic market didn't look very impressive at all. Based on these results, it's likely that Netflix will be able to continue growing in the near term, but with the streaming market getting even more crowded, the levers at management's disposal seem to be shrinking by the moment.