In the third quarter, Netflix added 5.1 million streaming members, more than one million more than Wall Street had predicted. The company also stated that it anticipated increased user growth around the holidays when the Korean drama “Squid Game” returns.
In Thursday’s after-hours trade, Netflix’s stock increased 4.8% in response to the earnings announcement. So far this year, the shares have increased by almost 47%.
Netflix has been attempting to refocus investor attention from sign-ups to metrics like revenue growth and profit margins as the rate of subscriber increase slows. It is promoting growth in its ad-supported plans and will cease providing subscriber figures starting next year.
The streaming behemoth revealed on Thursday that over half of the new users in the countries where it was accessible signed up for its ad-supported service during the third quarter.
LSEG analysts predicted Netflix would add 4 million new members between July and September. Netflix aired new shows like the romantic comedy “Nobody Wants This” and the murder thriller “The Perfect Couple” during that period.
Netflix earned $5.40 per share during the quarter, surpassing the $5.12 consensus estimate. The operating margin rose to 30%, up from 22% the previous year. Revenue reached $9.825 billion, slightly exceeding the $9.769 billion estimate.
“On the surface, Netflix is trending in all the right directions,” said Forrester analyst Mike Proulx. “Financially, revenue and operating margins continue to increase and expenses are down.”
Although the number of new subscribers exceeded projections, it was less than the 8.76 million that Netflix added in the same quarter last year.
“A steep decline in net new subscribers is what’s concerning. While there’s room for net subscriber growth internationally, in the U.S. things are getting tapped out,” Proulx said.
Netflix predicted its customer growth for the last three months of the year—typically a robust time around the holidays—would surpass that of the September quarter. However, the company did not give a specific number. Late December is when the second season of the Korean drama “Squid Game” is expected to premiere.
“We’re feeling really good about the business,” Ted Sarandos, the co-CEO, stated in a video released after the company’s earnings. “We had a plan to re-accelerate the business, and we delivered on that plan.”
CRAWL, WALK, RUN
The corporation claimed that after last year’s Hollywood strikes caused disruptions, the volume of its programs had increased. per member watched Netflix for an average of two hours per day.
Netflix does not anticipate advertising to become a major growth driver until 2026, despite the fact that it has seen increases in subscribers in its ad-supported tier.
“They consistently remind us of crawl, walk, run, and I think, yeah, it’s still definitely the beginning,” stated Magalie Grossheim, a senior equities research analyst at M Science. “In our data, we continue to see that the selection rate for the ad-supported plan is accelerating in a lot of the mature markets.”
Sports and other live events, which are popular with sponsors, are a part of the strategy. Netflix will broadcast a bout between YouTube sensation Mike Tyson and YouTuber Jake Paul in November, followed by two NFL games on Christmas Day.
On Friday, the business also intends to raise prices in Italy and Spain. It increased pricing earlier this month in Japan and a few European regions.
Sarandos turned down the idea of including Netflix in a reduced package with other streaming services. This proposal would have bundled Netflix with companies like Walt Disney and Warner Bros. Discovery.
Sarandos described this as a “comfortable model” for traditional media firms on Thursday. “What we’re focused on is adding more and more value to this package,” he said.
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