Break the doubt! Netflix (NFLX.US) added more than 5 million new users in Q3, and the performance fully exceeded expectations

The Zhitong Finance App learned that after the US stock market on Thursday, Netflix (NFLX.US) announced the third quarter results. According to the data, the company's Q3 sales increased 15% year over year to US$9.83 billion, better than market expectations; earnings per share rose to US$5.40, which was also better than market expectations.

Netflix added more than 5 million new users in the third quarter, and all major financial indicators surpassed Wall Street expectations, although the company's new program plans were affected by the Hollywood strike last year. Analysts had previously expected Netflix to add 4.52 million new users.

Netflix's share price rose 5.4% to $724.89 after the earnings report was announced. The stock has more than tripled since May 2022, when the company's slowdown in growth led to a sharp drop in share prices, and investors panicked the entertainment business.

Netflix added more than 5 million new users

Since then, Netflix has added more than 60 million new users, thanks to the company's crackdown on password sharing and the launch of a low-cost ad subscription service. The company had a total of 282.7 million subscribers at the end of the third quarter.

Netflix Co-CEO Ted Sarandos said: “We are very happy with the business. We have a plan to re-accelerate growth, and we have realized it.”

Breaking the “growth curse”

Most analysts believe that the boost from cracking down on password sharing is only temporary, and Netflix will soon need to find another way to grow. The company's investments in advertising or video games have yet to deliver substantial financial returns, and some on Wall Street are now worried that the stock is overvalued.

Edward Jones analyst Dave Heger said user growth “does seem to be slowing down.”

The total number of Netflix subscribers continues to grow

However, Netflix continued to grow stronger than expected, and its management tried to appease investors, saying the company would benefit from a crackdown on password sharing in the next few years.

Netflix predicted on Thursday that by adding new members and increasing prices, next year's sales will grow 11% to 13%, up to a maximum of $44 billion. Netflix will raise prices in Spain and Italy on Friday and said it will phase out a low price package in Brazil later in the quarter.

Nearly all of Netflix's new users are from Europe, the Middle East and Africa, and Asia Pacific. Netflix lost customers in Latin America for the first time since early 2023. The company also said that the number of new users in the fourth quarter will surpass that of the third quarter.

Reinvent the advertising business

While Netflix acknowledged that its advertising business is progressing slowly, management said the company has ambitious goals for the next few years. The company is developing its own advertising technology and has reached several agreements to sell its ad-supported services along with other streaming services. Netflix Co-CEO Greg Peters said advertising sales will double next year.

“We still have a lot of work to do to improve the services we provide to advertisers, and this will be a priority for the next few years,” Netflix wrote in a letter to shareholders.

Netflix has begun investing in live streaming shows to increase ad inventory. The company will provide a live boxing match next month, followed by two NFL games on Christmas. Starting next year, Netflix will provide customers with three hours of live wrestling every week.

Netflix's programming schedule was delayed for most of this year due to two strikes in Hollywood last year, and production has yet to fully resume. However, the company still achieved great success with series such as “The Perfect Couple” and the new season of “Emily in Paris.” The company said fourth-quarter episodes were particularly exciting, including the return of its all-time highest-rated TV series “Squid Game” (Squid Game).

Netflix management said spending on advertising and new shows will slow the upward trajectory of the company's profitability. The company's net profit has quadrupled in the past five years, yet its operating margin next year will only increase by one percentage point from the level expected in 2024, to 28%.

Netflix said, “We want to balance short-term profit margin growth with appropriate business investments. In the long run, profit margins still have a lot of room to improve.”