Netflix’s earnings and subscriber growth top estimates as investors eye potential price hikes
Netflix stock rose by up to 5% in aftermarket trading on Thursday after the company beat expectations for both earnings and revenue in the third quarter.
The streaming giant reported revenue of $9.83 billion, surpassing Bloomberg’s estimate of $9.78 billion and was a 15% increase over the same period last year.
This growth is primarily due to Netflix’s recent actions, such as its tighter grip on password sharing, the introduction of an ad-funded plan, and previous price increases.
Subscriber growth was also strong, with Netflix adding 5.07 million new subscribers, surpassing the estimate of 4.5 million. This follows the 8.05 million new subscribers added in the second quarter.
Netflix attributes the success to popular content like “The Perfect Couple” and “Nobody Wants This”.
The company expects even greater growth in the fourth quarter, with upcoming big releases like “Squid Game” Season 2, the Jake Paul vs. Mike Tyson fight, and two NFL games on Christmas Day.
Looking ahead, Netflix has predicted revenue of $10.13 billion for the fourth quarter, again exceeding expectations of $10.01 billion.
For 2025, the company expects revenue of between $43 billion and $44 billion, representing a growth of 11% to 13% compared to the projected $38.9 billion in 2024.
Netflix has also improved its forecast for this year’s operating margin, which is expected to reach 27%, up from 26% previously. In the third quarter, operating margins reached nearly 30%.
Earnings per share (EPS) for the quarter also exceeded expectations, coming in at $5.40 compared to the expected $5.16. In comparison, Netflix reported EPS of $3.73 last year.
For the fourth quarter, the company forecasts $4.23 EPS, which is higher than Wall Street’s expectation of $3.90.
Investors are optimistic about Netflix’s bet on sports and live events, which has gained traction. The ad-funded plan, which was introduced less than two years ago, now accounts for over 50% of new sign-ups in the countries where it is offered. Netflix reported 35% growth in ad-funded subscriptions quarter over quarter, and the company plans to launch its ad tech platform in Canada in the fourth quarter, with a wider rollout in 2025.
The company also announced that its advertising sales commitments have increased by over 150% year over year, emphasizing the importance of ads as a future revenue source.
However, Netflix co-CEO Greg Peters mentioned that ads won’t be the primary source of revenue next year as they are still working to realize the full potential of their growing audience. Still, the company sees opportunities to narrow this gap.
Netflix stock is up around 45% since the start of the year and is trading near record highs, but analysts expect another price increase before the end of the year, which could give the stock a further boost.
Netflix last raised prices on its Standard and Premium plans in 2022, and analysts predict another price increase in 2025.
Although Netflix reported that users watched over 94 billion hours of content from January to June, engagement was flat compared to last year, which may affect the company’s future pricing.
On average, US consumers subscribe to four streaming services and spend around $61 per month. Retaining loyal subscribers will be a challenge as consumers increasingly switch or cancel their subscriptions.
While Netflix has phased out its cheapest ad-free plan, the company has maintained its ad-funded option at $6.99, making it one of the cheapest ad plans among the major streaming services.
Analysts believe Netflix has the potential to raise prices in the US by around 12% by 2025.
