Netflix reports strong Q3 results and shifts focus to revenue growth

Netflix has reported a significant rise in its operating margin, alongside an impressive gain in subscriber numbers for the third quarter of the year. The streaming platform attracted 5.1 million new subscribers from July through September, surpassing Wall Street’s expectations by over 1 million. This achievement contributed to a 4.8 per cent increase in Netflix shares during after-hours trading on Thursday. Overall, the company’s shares have seen a robust 47 per cent increase throughout the year.

The focus for Netflix has been shifting as the pace of subscriber additions slows. Traditionally centred on subscriber growth, the streaming giant is now emphasizing revenue growth and profit margins, as it anticipates no longer reporting subscriber data from next year. The company is highlighting its ad-supported plans, which have shown promising results, accounting for more than 50 per cent of new sign-ups in regions where they are available.

During the third quarter, Netflix generated revenue of $9.825 billion, slightly surpassing the consensus forecast of $9.769 billion. The company also reported earnings of $5.40 per share, exceeding the expected $5.12. Notably, Netflix’s operating margin climbed to 30 per cent, compared to 22 per cent in the same period last year.

Despite these positive financial indicators, the number of new subscribers fell short of the previous year’s third quarter, where 8.76 million new members were added. Analysts, such as Forrester’s Mike Proulx, have expressed concerns about the slowing growth, particularly in the US market. However, there remains potential for further growth in international markets.

Netflix foresees continued subscriber growth in the fourth quarter, buoyed by the much-anticipated second season of the Korean drama “Squid Game”, expected in late December. Co-CEO Ted Sarandos expressed optimism about the company’s strategic plans and overall business performance.

The company has seen renewed programming momentum following last year’s Hollywood strikes. Average engagement among members has maintained steady at two hours per day. Although Netflix’s ad-supported tiers are growing, the company does not expect significant growth from advertising until 2026. This strategic development will advance through a phased approach, described by M Science’s Magalie Grossheim as “crawl, walk, run.”

Live events, including prominent sports fixtures, represent a key component of this strategic shift. Netflix plans to broadcast a boxing match featuring YouTube star Jake Paul against Mike Tyson in November and two NFL games on Christmas Day. Additionally, Netflix is set to implement price increases in Spain and Italy, following similar adjustments in other European markets and Japan earlier this month.

In terms of partnerships, Sarandos dismissed the possibility of bundling Netflix with other streaming services at a discount, such as those offered by Walt Disney and Warner Bros Discovery. Instead, Netflix aims to enhance the value of its offerings independently, adhering to a model more aligned with traditional media companies.

The strategic moves and strong financial performance reflect Netflix’s evolving business model as it navigates a competitive landscape and seeks to maximise its market presence.

Source: Noah Wire Services