Netflix stock surges after earnings, subscriber growth top estimates

Fri, Oct 18, 2024, 8:27 AM 5 min read

Revenue beat Bloomberg consensus estimates of $9.78 billion to hit $9.83 billion in Q3, Netflix reported after the market close on Thursday, an increase of 15% compared to the same period last year. The growth came as the streamer continued to lean on revenue initiatives like its crackdown on password sharing and ad-supported tier, in addition to last year's price hikes on certain subscription plans.

Netflix guided to fourth quarter revenue of $10.13 billion, a beat compared to consensus estimates of $10.01 billion.

For full-year 2025, the company sees revenue hitting between $43 billion and $44 billion, compared to consensus estimates of $43.4 billion. This would represent growth of 11% to 13% from the company's expected 2024 revenue guidance of $38.9 billion.

It expects full-year operating margins to hit 27%, an increase from the previous 26%, after the metric hit nearly 30% in the third quarter.

Diluted earnings per share (EPS) also beat estimates in the quarter, with the company reporting EPS of $5.40, above consensus expectations of $5.16 and well ahead of the $3.73 EPS figure it reported in the year-ago period. Netflix guided to fourth quarter EPS of $4.23, ahead of consensus calls for $3.90.

Subscribers also came in strong with another 5 million-plus subscribers added on the heels of breakout programming like "The Perfect Couple" and "Nobody Wants This."

Subscriber additions of 5.07 million beat expectations of 4.5 million and follows the 8.05 million net additions the streamer added in the second quarter. The company had added 8.8 million paying users in Q3 2023.

"We expect paid net additions to be higher in Q4 than in Q3’24 due to normal seasonality and a strong content slate," the company said, citing upcoming releases like "Squid Game" Season 2, the Jake Paul vs. Mike Tyson fight, and two NFL games on Christmas Day.

Investors have praised the company's foray into sports and live events. Meanwhile, its ad tier continues to gain traction, accounting for over 50% of sign-ups in the countries where it's offered during the third quarter.

"We continue to build our advertising business and improve our offering for advertisers," the company said in the earnings release. "Ads membership was up 35% quarter on quarter, and our ad tech platform is on track to launch in Canada in Q4 and more broadly in 2025."

Last quarter, Netflix revealed it secured "a 150% plus increase in upfront ad sales commitments over 2023." The company has previously said its goal is to make ads "a more substantial revenue stream that contributes to sustained, healthy revenue growth in 2025 and beyond."

On the earnings call, Netflix co-CEO Greg Peters said that while ads won't be a primary driver of revenue next year as "we're still scaling that audience and that inventory faster than our ability to monetize it," the company sees an "opportunity to close that gap."

Leading up to the results, Netflix's stock had been on a tear, with shares up around 45% since the start of the year and trading near all-time highs.

Analysts expect another price hike by the end of the year, which will likely serve as yet another catalyst for shares. But the stock's recent run-up has led to some apprehension on Wall Street.

Price hike to come?

The company recently revealed subscribers watched over 94 billion hours on the platform from January to June as part of its latest biannual viewership report, although year-over-year engagement levels came in roughly flat — a potential headwind when it comes to pricing power, which has become especially important for streaming companies as consumers become more picky.

On average, US consumers subscribe to four streaming services and spend about $61 per month, according to the latest Digital Media Trends report from Deloitte. Retaining loyal subscribers over time is a challenge due to consumers churning out of, or canceling, their subscription plans.

Netflix last raised the price of its Standard plan in January 2022, upping the monthly cost to $15.49 from $13.99. It also raised the price of its Premium tier by $2 to $19.99 a month at the same time; the company again raised the cost of that plan last October to $22.99.

The company has yet to raise the price of its ad-supported offering, introduced less than two years ago, which remains one of the cheapest ad plans among all of the major streaming players at $6.99 a month.

"Given Netflix’s low cost per viewed hour, we see scope for the firm to raise US prices by 12% in 2025," Citi analyst Jason Bazinet said ahead of the report.

The company recently phased out its lowest-priced ad-free streaming plan, making the $15.49 Standard plan its cheapest offering for an ad-free experience.