In a significant boost to its subscriber base, Netflix (NFLX.O) welcomed 5.1 million new streaming subscribers during the third quarter, surpassing Wall Street’s expectations by over a million.
The company anticipates even greater customer growth as the holiday season approaches, particularly with the much-anticipated return of the Korean drama “Squid Game.”
Following the release of its earnings report, Netflix shares surged by 4.8% in after-hours trading, marking an impressive 47% increase year-to-date.
Amid a deceleration in subscriber growth, Netflix is strategically redirecting investor focus from raw sign-up numbers to more nuanced metrics, such as revenue growth and profit margins.
Starting next year, the company will cease reporting subscriber figures and is instead highlighting the performance of its ad-supported offerings.
On Thursday, Netflix revealed that its ad-supported service constituted over 50% of new sign-ups in regions where it is available.
Analysts had projected that Netflix would gain approximately 4 million subscribers from July through September, according to estimates from LSEG.
This quarter also featured new content releases, including the murder mystery “The Perfect Couple” and the romantic comedy “Nobody Wants This.”
Financially, Netflix reported earnings of $5.40 per share, exceeding the consensus forecast of $5.12. Its operating margin climbed to 30%, up from 22% in the same quarter last year.
Revenue reached $9.825 billion, slightly surpassing the consensus estimate of $9.769 billion.
“For all intents and purposes, Netflix is heading in the right direction,” Mike Proulx, an analyst at Forrester told Reuters.
Revenue and operating margins are on the rise, while expenses are being managed effectively.
However, despite the impressive subscriber additions, the numbers fell short of the 8.76 million subscribers acquired in the same period last year.
Proulx expressed concern over what he termed a “steep decline” in net new subscribers, noting, “While there’s room for net subscriber growth internationally, in the US, things are getting tapped out.”
Looking ahead, Netflix forecasts that customer additions for the final quarter of the year—a typically robust period due to holiday viewership—will exceed those of the September quarter, although specific figures were not disclosed.
The highly anticipated second season of “Squid Game” is set to debut in late December.
“We’re feeling really good about the business,” said Co-CEO Ted Sarandos in a post-earnings video.
“We had a plan to re-accelerate the business, and we delivered on that plan.”
A methodical approach to growth
The company noted that its programming output has increased following disruptions caused by last year’s Hollywood strikes.
Engagement metrics reveal that the average member spends around two hours per day watching Netflix.
While the company has seen growth in its ad-supported tier, it does not expect advertising revenue to become a primary growth driver until 2026.
Magalie Grossheim, a senior equity research analyst at M Science, remarked,
They consistently remind us of crawl, walk, run, and I think, yeah, it’s still definitely the beginning. In our data, we continue to see that the selection rate for the ad-supported plan is accelerating in a lot of the mature markets.
Integral to Netflix’s strategy are live events, particularly sports, which are appealing to advertisers.
In November, the platform plans to stream a highly anticipated fight between YouTube star Jake Paul and boxing legend Mike Tyson, followed by two NFL games on Christmas Day.
Additionally, Netflix intends to raise prices in Spain and Italy starting Friday, following earlier price increases in select European markets and Japan.
Sarandos has dismissed the notion of bundling Netflix with other streaming services such as Walt Disney (DIS.N) and Warner Bros Discovery (WBD.O), stating, “What we’re focused on is adding more and more value to this package,” describing this approach as a “comfortable model” for traditional media companies.
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