Important takeaways from Netflix’s (NFLX) Q3 2024 report

Netflix, Inc. (NASDAQ: NFLX) has reported stronger-than-expected revenue, earnings, and subscriber numbers for the third quarter. Over the years, the video-streaming giant maintained its market dominance by consistently investing in content, even while facing challenges.

Netflix’s stock rallied soon after the earnings announcement last week, and the uptrend continued in the following sessions. With the price more than doubling in the past 12 months, NFLX is one of the top-performing stocks. This year, the company’s successful crackdown on password-sharing and rapid growth in ad-tire signups contributed to the upbeat investor sentiment. Currently, the stock is trading at a premium, which calls for a careful evaluation of the business before investing.

Knockout Quarter

In the September quarter, net income increased to $2.36 billion or $5.40 per share from $1.68 billion or $3.73 per share in the comparable period of 2023. Earnings also topped the market’s expectations. The bottom-line growth was driven by a 15% growth in revenues to $9.83 billion, beating estimates. The company added 5.07 million new members and ended the third quarter with a total of 282.72 million paid subscribers. Memberships grew in double digits across all business segments.

The entertainment behemoth’s current focus is on attracting more subscribers to its ad-supported service, offering a less expensive entry point to new users. This model creates new opportunities for advertisers by enabling them to reach a wider and diversified audience. The strategy of ‘growing while investing’ has been quite successful, as indicated by the company’s rich content library and impressive financial performance this year. It is estimated that advertising will be a bigger growth driver than subscriber growth in the future.

New Ventures

There has been growing interest in Netflix’s live sports programming, an ambitious initiative that the company expects to scale in the long term. The company is reportedly acquiring the rights to exclusively stream NFL games in the final weeks of the year. Meanwhile, it is likely to witness increased competition in both domestic and international markets in the coming years, which will demand a prudent pricing strategy.

From Netflix’s Q3 2024 earnings call:

“We benefit greatly from improving the quality of the movies and the shows much more so than we do from making them a little cheaper. So, any tool that can go to enhance the quality, making them better is something that is going to actually help the industry a great deal. When I look at YouTube specifically, I’d say look, we compete directly with YouTube for people’s time, for the time they spend on that TV screen. But we have very different strengths. And we continue to invest in ambitious premium content to grow our share of engagement.”

Guidance

For the fourth quarter, the Netflix leadership forecasts revenues of $10.13 billion, which is up 15% year-over-year. The projection for Q4 net income is $1.85 billion or $4.23 per share. It is looking for an operating income of $2.19 billion for the December quarter when operating margin is expected to be 21.6%.

On Tuesday, shares of Netflix hovered near their recent peak, continuing the post-earnings upswing. The stock has gained 58% so far in 2024.