Netflix shares are up 20% after-hours, entirely erasing the losses post Q2 earnings after smashing expectations for Q3 subscriber growth.

• 3Q total streaming net change +6.96 million, estimate +5.09 million

So that is two quarters in a row that they massively mis-estimated their subscriber growth.

And raising their estimates for Q4:

• Sees 4Q total streaming net change +9.40 million vs a prior estimate +7.18 million (consisting of international streaming net change +7.60 million, estimate +5.54 million and U.S. streaming net change +1.80 million, estimate +1.64 million)

However, Netflix also warns that in Q4 its operating margin will dip to 5% from 7.5% in the year ago quarter. Hastings says the drop is due to the timing of content spend and a higher mix of original films in Q4 of 2018.

Netflix also cut its 4Q EPS estimate to 23c from a previous estimate 50c (range 29c to 89c) (Bloomberg data)

Additionally, Netflix sees Free Cashflow closer to -$3B Than to -$4B for 2018 (and next year's negative Free Cashflow roughly the same as 2018).

Netflix didn't specify how much money it will spend on programming next year, but it did say it has spent $6.9 billion so far this year. That means the company is on pace to surpass its previous forecast (of $7 billion to $8 billion). And, we note that 3Q streaming content obligations were $18.6 billion.

In the shareholder letter, Netflix addresses its negative free cash flow outlook:

"We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past. These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead."

Under the hood, operating income is expected to slow as is revenue growth and US contribution profit.

And just like that - all Q2 earnings disappointment losses are gone...

Will the market keep ignoring the EPS cut by morning?