Netflix (NFLX) reported a strong third quarter, adding 5.1 million new streaming subscribers, which exceeded Wall Street expectations by more than a million. The boost in subscribers helped Netflix’s stock jump 4.8% in after-hours trading. The company’s shares have now surged by about 47% so far in 2024.
Strong Financial Performance Amid Slowing Subscriber Growth
While subscriber growth has been slowing compared to previous years, Netflix has shifted its focus towards revenue growth and profit margins. The streaming giant reported earnings of $5.40 per share for the quarter, surpassing analyst expectations of $5.12. Revenue also increased to $9.825 billion, slightly higher than the $9.769 billion forecast. Additionally, operating margin climbed to 30%, compared to 22% a year earlier.
Forrester analyst Mike Proulx noted, “Financially, revenue and operating margins continue to increase and expenses are down.” However, he expressed concern over the significant decline in new subscriber additions compared to the same quarter last year when the company gained 8.76 million users.
Ad-Supported Plans Show Promise
In an effort to diversify revenue streams, Netflix has been growing its ad-supported plans. During the third quarter, more than 50% of new signups in countries where the ad tier is available opted for the ad-supported service. Despite this success, Netflix does not expect advertising to be a significant growth driver until 2026.
Magalie Grossheim, senior equity research analyst at M Science, remarked, “In our data, we continue to see the selection rate for the ad-supported plan accelerating in a lot of the mature markets.”
Future Outlook: “Squid Game” Return and Live Events
Netflix is optimistic about its future growth, particularly around the holiday season when the second season of the popular Korean drama Squid Game is scheduled for release. Co-CEO Ted Sarandos said, “We had a plan to re-accelerate the business, and we delivered on that plan.”
The company is also expanding into live events to attract more advertisers. In November, Netflix will stream a highly anticipated fight between YouTube star Jake Paul and Mike Tyson, followed by two NFL games on Christmas Day.
Netflix plans to raise prices in Spain and Italy, following price hikes in other European markets earlier this month. Despite pressure from competitors, Sarandos emphasized that Netflix would not bundle its services with others like Walt Disney (DIS) or Warner Bros Discovery (WBD), focusing instead on adding more value to its current offering.