Netflix (NFLX +11%) saw a significant rise following its Q3 earnings report, showcasing a double-digit EPS beat and revenue growth. The company provided impressive Q4 guidance, projecting a substantial EPS increase and forecasting its first-ever $10 billion revenue quarter. Netflix also anticipates FY25 revenue of $43-44 billion with a 28% operating margin.
Key Highlights:
- Global streaming paid net additions in Q3 reached 5.07 million, surpassing expectations, despite cautious growth estimates due to comparisons with last year's paid sharing. Netflix anticipates higher net adds in Q4, driven by seasonality and strong content. The company will stop reporting net adds in 1Q25.
- Advertising saw a significant boost, with ad memberships up 35% quarter-on-quarter. Over 50% of sign-ups in 12 ad-supported countries opted for the ads plan. Netflix aims to reach critical scale in these countries by 2025 and plans to launch its ad tech platform in Canada in Q4 and expand in 2025.
- Netflix's strategy to grow ad-tier memberships involves live programming, including the Tyson-Paul fight in December, NFL games on Christmas, and 52 weeks of WWE starting in January.
- Price increases were implemented in several EMEA countries and Japan, with upcoming hikes in Spain and Italy. The Basic plan was phased out in the US and France, with Brazil to follow in Q4. The ads plan, offering lower prices, is gaining popularity, with engagement levels similar to the standard plan.
- Operating margin, a key metric as net add reporting ends, reached 29.6% in Q3, exceeding prior guidance of 28.1%. The FY24 forecast was raised to 27%, with Q4 guidance at 21.6%. Netflix projects a 28% operating margin in 2025, up from 27% in 2024.
Overall, Netflix's Q3 performance was impressive, especially compared to other streaming platforms struggling with profitability. The ads business is expanding rapidly, with 50% of sign-ups in ad-supported countries coming from the ads tier. This segment is expected to contribute significantly by 2025.
