ii view: Netflix powers past Q3 forecasts

Third-quarter results to 30 September

• Added 5.1 million net new subscribers to a total of 282.7 million
• Revenue up 15% year-over-year to $9.83 billion
• Earnings per share (EPS) of $5.40, up from $3.73 per share

Guidance:

• Expects revenues of $10.13 billion for the current fourth quarter

ii round-up:

Media mammoth Netflix Inc (NASDAQ:NFLX) detailed sales and earnings that beat Wall Street expectations as subscriber numbers rose by a further 5.1 million to 282.7 million. 

Third-quarter revenues climbed 15% year-over-year to $9.83 billion, driving earnings up 45% to $5.40 per share. That beat analyst estimates for revenues and earnings of $9.79 billion and $5.12 per share. Netflix now forecasts full-year 2024 revenue growth of 15%, up from a previous estimate of 14% and with the profit margin potentially hitting 27% versus 21% in 2023.

Shares in the Nasdaq 100 company rose 5% in afterhours US trading having come into this latest news up 41% year-to-date. That’s significantly ahead of a 7% gain for rival streamer The Walt Disney Co (NYSE:DIS) and comfortably above a 22% gain for the Nasdaq 100 tech index itself.

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Recent pushes made by Netflix to increase revenue streams include introducing a cheaper service that includes adverts, and increasing coverage of live sport. The streamer will be airing two NFL American football games on Christmas day.

The lower-cost ad-related subscription accounted for half of all new member sign-ups during this latest quarter, for those countries where it is available. A rollout of the service will be made in Canada in Q4. 

Free cashflow totalled $2.2 billion during the period, up from $1.98 billion in the year ago period. A total of 2.6 million shares were bought-back during Q3. 

Broker Morgan Stanley reiterated its ‘overweight’ on the shares post the results, flagging a fair value target of $830 per share.  

ii view:

Headquartered in California, Netflix launched its online streaming service in 2007, nearly a decade after it began its DVD-by-mail movie rental service. Its home North American market continues to generate its biggest slug of sales at 44%, followed by Europe, the Middle East, and Africa at 32%, Latin America 13% and Asia Pacific the balance of 11%. 

For investors, pressure on consumer spending, given heightened borrowing costs, cannot be ignored. A move to exclude customer subscription numbers arguably reduces investor transparency. Costs for businesses generally are now elevated, while unlike competitors such as Apple Inc (NASDAQ:AAPL), Comcast Corp Class A (NASDAQ:CMCSA) and ITV (LSE:ITV), Netflix does not currently pay a dividend.

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To the upside, management initiatives to reignite growth do appear successful, with the expected full-year operating profit margin up 6% year-over-year. A lower-cost plan including adverts does ease the cost for financially pressed customers. A previous purchase of rights to show World Wrestling Entertainment (WWE) is now being joined by selective boxing such as the Mike Tyson versus Jake Paul fight, while its gaming business following the previous acquisition of a video games maker remains in its infancy.  

In all, and despite ongoing risks, with streaming here to stay and Netflix having gained first mover advantage, fans of this Silicon Valley giant are likely to keep subscribing to the stock.  

Positives: 

• Management initiatives like advertising
• Geographical diversity

Negatives:

• Intense competition from Disney, Apple and others
• Subject to currency movements given overseas customer base

The average rating of stock market analysts:

Buy