A current holding within the US Growth portfolio, Netflix shares have surged 9.5% in after-hours trading as investors react positively to the latest Q3 earnings update.
Amid the intense competition between streaming giants, Netflix remains a dominant force, with third-quarter results overwhelmingly positive. Netflix has successfully added a net 8.76 million paid subscribers over the three months. This is not just an increase from last year’s 2.41 million but also surpasses the analyst estimates, which had anticipated 6.20 million. Revenues climbed to $8.54 billion, marking a 7.8% year-on-year growth, and slightly edging out the estimated $8.53 billion. In terms of earnings per share, Netflix reported $3.73, a growth from the prior year’s $3.10 and comfortably outpacing the forecasted $3.49.
As we look towards the fourth quarter, management is guiding revenues of $8.69 billion and an EPS of $2.15, both modestly below consensus forecasts. Encouragingly, it seems poised to continue its subscriber growth momentum.
Several strategic decisions have played pivotal roles in this upward curve. For starters, Netflix’s bold move to hike its prices in the US, UK, and France stands as a testament to its unwavering confidence in both its product and growing customer base. The company’s clampdown on password sharing, a practice once seen as a potential revenue leak, has proven to be a masterstroke, which coupled with the introduction of the ‘paid sharing’ feature, has boosted subscriptions.
Content remains king for Netflix. Their diversified content strategy, marked by the release of popular shows like ‘Virgin River’ and ‘Heartstopper’, combined with their recent collaboration with Skydance Animation for upcoming animated releases, underscores their commitment to staying ahead in the content race.
The streaming landscape is notoriously competitive, with new entrants frequently increasing competition, however, Netflix’s Q3 performance affirms its prowess in the industry. With a clear strategy, an expanding subscriber base, and a keen eye for content, Netflix remains well-positioned in the streaming universe, signaling a bright future ahead for its stakeholders.
As a reminder, NFLX’s inclusion in the US Growth portfolio is based on its share price momentum. While the share price has corrected lower over the prior two months, in line with the broader market, the positive update and share price reaction as likely to see NFLX resume its relative outperformance. While it continues to do so, it remains an active buy/hold recommendation.
