Netflix is an American subscription video on-demand over-the-top streaming service. The service primarily distributes original and acquired films and television shows from various genres, and it is available internationally in multiple languages.
While not a current holding in the portfolios, Netflix is often a holding within client portfolios and therefore warrants covering. NFLX reported another strong quarter, sending its shares up 5% in after-hours trading as the company beat expectations across key metrics, including subscriber growth, revenue, and profitability.
The streaming giant added 5.07 million new subscribers in the third quarter, surpassing the consensus estimate of 4.52 million, bringing its total membership to 282.7 million. This performance was particularly notable given the challenges posed by the Hollywood strikes that impacted new content releases.
Revenue for the quarter grew 15% year-on-year to $9.82 billion, slightly ahead of estimates, while earnings per share (EPS) surged to $5.40, well above the expected $5.12. Netflix’s operating margin also rose significantly, reaching 29.6% compared to 22.4% in the same period last year. This impressive margin growth, despite increased investments in content, was a key factor in boosting investor confidence. Free cash flow was another highlight, coming in at $2.19 billion, outpacing forecasts of $1.73 billion, indicating strong financial health.
Regionally, Netflix saw mixed subscriber growth. While North America added 690,000 subscribers, the EMEA and APAC regions were the main drivers, with 2.17 million and 2.28 million new subscribers, respectively. APAC’s 21% year-on-year growth exceeded expectations, while Latin America faced challenges, losing 70,000 subscribers, which was a notable decline compared to previous quarters. Nevertheless, the overall global subscriber growth remains solid, underscoring the platform’s ability to expand its reach despite regional fluctuations.
Looking ahead, Netflix provided a positive fourth-quarter outlook, forecasting revenue of $10.13 billion and EPS of $4.23, both above analyst expectations. The company also raised its operating margin target for 2024 to 27%, with a projection of 28% in 2025. These revisions suggest strong future profitability, supported by anticipated price hikes and the continued ramp-up of its advertising business.
In terms of content, Netflix is set to capitalise on several highly anticipated releases in the fourth quarter, including Squid Game 2, Paul vs. Tyson, and two live NFL games, which are expected to drive further subscriber growth. The company’s investment in live programming, such as sports and boxing events, signals a strategic shift to broaden its offerings and attract new audiences, particularly in the ad-supported subscription tier. While the advertising business has been slow to scale, management expressed confidence that it will become a significant revenue driver in 2026 and beyond.
Despite some concerns about the slowing growth of subscribers, Netflix continues to outperform its peers. Its ability to maintain double-digit revenue growth—projected at 11-13% for 2024—while improving its margins sets it apart in the competitive streaming market. The company’s recent price hikes in Spain and Italy, along with its strategy to phase out lower-priced plans in certain regions, are expected to further boost revenues.
Overall, Netflix’s third-quarter results demonstrate the company’s ability to navigate industry challenges while continuing to expand its global subscriber base. With a strong content slate and strategic initiatives in advertising and live programming, Netflix is well-positioned for sustained growth, pulling ahead of its competitors in the increasingly crowded streaming space.
