Netflix (NFLX) Delivers Strong Third Quarter Earnings, Beats Expectations
Netflix (NFLX) saw a surge in its stock price, rising as much as 5% in after-hours trading on Thursday after the streaming giant surpassed third-quarter EPS and revenue estimates. The company also projected sales for the current quarter that exceeded Wall Street’s expectations.
In Q3, Netflix reported revenue of $9.83 billion, beating Bloomberg consensus estimates of $9.78 billion. This marked a 15% increase compared to the same period last year. The growth was attributed to revenue initiatives such as cracking down on password sharing, introducing an ad-supported tier, and implementing price hikes on specific subscription plans from the previous year.
Looking ahead, Netflix guided fourth-quarter revenue to reach $10.13 billion, surpassing consensus estimates of $10.01 billion. Additionally, for the full year 2025, the company anticipates revenue between $43 billion and $44 billion, showing an 11% to 13% growth rate from the expected 2024 revenue guidance of $38.9 billion.
Furthermore, Netflix expects full-year operating margins to increase to 27% from the previous 26%, following nearly 30% in the third quarter. Diluted earnings per share (EPS) also exceeded estimates, with the company reporting EPS of $5.40, above consensus expectations of $5.16. Netflix guided fourth-quarter EPS to be $4.23, ahead of consensus calls for $3.90.
Subscriber additions remained robust, with over 5 million subscribers added in the quarter, driven by popular programming like “The Perfect Couple” and “Nobody Wants This.” The company surpassed expectations by adding 5.07 million subscribers, following the impressive 8.05 million net additions in the second quarter.
Netflix’s strategic foray into sports and live events has garnered praise from investors. Additionally, the ad tier continues to gain traction, accounting for over 50% of sign-ups in countries where it is available during the third quarter.
Innovating in the advertising space, Netflix continues to build its advertising business, with a 35% quarter-on-quarter increase in ads membership. The company’s ad tech platform is set to launch in Canada in Q4 and expand further in 2025.
Netflix saw a 150% increase in upfront ad sales commitments over 2023, reinforcing its goal to make ads a substantial revenue stream that contributes to sustained growth. During the earnings call, Netflix co-CEO Greg Peters highlighted the opportunity to close the gap between scaling the audience and monetizing it.
As Netflix’s stock has been performing well, analysts anticipate another price hike by the end of the year, which could serve as a catalyst for share growth. However, there is some apprehension on Wall Street as engagement levels remained relatively flat year-over-year.
With the competition in the streaming industry intensifying, pricing power becomes crucial for companies like Netflix. The company last raised prices in January 2022, and analysts suggest a potential 12% price increase in 2025 for US subscribers.
Netflix phased out its lowest-priced ad-free streaming plan, making the $15.49 Standard plan its most affordable ad-free option. As the company continues to evolve its pricing strategy, investors are keeping a close eye on potential price hikes as a driver for future growth.
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