Netflix (NFLX, Financial) reported its third-quarter financial results, showcasing a 15% rise in sales to $9.83 billion, surpassing market expectations. Earnings per share increased to $5.40, also exceeding forecasts. The company added over 5 million new subscribers, outperforming analyst expectations of 4.52 million, despite the impact of last year's Hollywood strikes on its new programming schedule.
Following the earnings release, Netflix's stock rose by 5.4%, reaching $724.89. Since May 2022, the company's stock has more than tripled, rebounding from a period of slow growth that caused widespread investor concern.
The significant user growth to a total of 282.7 million subscribers at the end of the third quarter is attributed to Netflix's crackdown on password sharing and the introduction of lower-priced ad-supported subscription plans.
Despite concerns that these measures may only temporarily boost growth, Netflix remains optimistic. The company predicts a revenue increase of 11% to 13% next year through new memberships and price hikes. Additionally, Netflix plans to increase prices in Spain and Italy and discontinue a low-cost plan in Brazil later this quarter.
New subscribers mainly came from Europe, the Middle East, Africa, and the Asia-Pacific, with a noted customer loss in Latin America for the first time since early 2023. However, Netflix expects fourth-quarter subscriber additions to surpass those in the third quarter.
Netflix is prioritizing long-term growth in its advertising business, despite current slow progress. The company aims to double ad revenue next year and is investing in its advertising technology and forming partnerships to sell ad-supported services alongside other streaming platforms. Live programming investments are underway, with upcoming events like a live boxing match and NFL games planned to boost their advertising inventory.
Content production faced delays this year due to last year’s Hollywood strikes, but successful releases like "The Perfect Couple" and "Emily in Paris" have maintained momentum. The company anticipates a strong fourth-quarter lineup, including the return of its most-watched series, "Squid Game."
Despite the increasing advertisement and content spending, which could slow profitability growth, Netflix aims to balance short-term margin growth with strategic business investments. The company’s net income has quadrupled over the past five years, with an operating margin projected to increase to 28% next year.
