FX.co ★ Netflix Q3 Results Top Estimates, Stock Up In After-hours

Netflix Inc. (NFLX) announced a strong performance in its third quarter, reporting a net income of $2.36 billion, or $5.40 per share, compared to $1.68 billion, or $3.73 per share, in the same period last year. This result exceeds analysts' expectations, who predicted earnings of $5.12 per share according to Thomson Reuters, typically excluding special items.

The company saw a 15% year-over-year increase in average paid memberships, although paid net additions for the third quarter in 2024 reached 5.1 million, a decrease from the 8.8 million in the third quarter of 2023. Memberships with ads rose 35% sequentially. Their proprietary advertising technology platform is set to debut in Canada soon, with a wider rollout across all advertising markets anticipated in 2025.

On Thursday, NFLX shares closed regular trading at $687.65, reflecting a decline of $14.35 or 2.04%. However, during after-hours trading, the stock increased by $29.40 or 4.28%.

Revenue for the third quarter grew to $9.82 billion, up from $8.54 billion the previous year, surpassing the anticipated revenue of $9.77 billion.

Looking forward to the fourth quarter, Netflix projects a 15% revenue increase, or 17% on a foreign exchange neutral basis. The company expects higher paid net additions than those in the third quarter due to typical seasonal patterns and robust content offerings. An operating margin of 22% is projected for the fourth quarter, marking a five percentage point improvement compared to the previous year.

Further, for the fourth quarter, Netflix anticipates earnings per share of $4.23 and revenue of $10.13 billion. Analysts are predicting earnings of $3.91 per share and revenues of $10.04 billion.

For the year 2024, Netflix is forecasting a 15% year-over-year revenue growth, reaching the upper end of its initial projection of 14% to 15%, with an anticipated operating margin improvement to 27%, up from 26%.

As Netflix gears up for 2025, the company's focus will be on sustaining revenue and profit growth by enhancing its core series and film collection while investing in new ventures such as advertising and gaming. It expects revenue to range from $43 billion to $44 billion, indicating an 11% to 13% increase from the 2024 projection of $38.9 billion. This growth is expected to derive from the increase in paid memberships and the average revenue per member.

Netflix aims for a 28% operating margin in 2025, compared to a 27% forecast for 2024, as calculated at the foreign exchange rates in effect as of September 30, 2024. After achieving substantial margin gains in 2024, the company plans to judiciously balance short-term margin enhancement with essential investments for its growth, projecting continued margin expansion in the longer term.

The company is on course to reach vital advertising subscriber metrics across all advertising regions by 2025, paving the way to expand ad membership in 2026 and subsequent years. User engagement with the ad-supported plan mirrors that of the standard plan across the 12 countries with advertising. Nonetheless, enhancing its offering for advertisers will be a priority in the coming years.