What to expect when Netflix (NFLX) reports Q3 2023 earnings results

Shares of Netflix Inc. (NASDAQ: NFLX) were down over 1% on Wednesday. The stock has gained 24% year-to-date. The streaming giant is scheduled to report its third quarter 2023 earnings results on Wednesday, October 18, after market close. Here’s a look at what to expect from the earnings report:

Revenue

Netflix has guided for revenues to grow 7.5% year-over-year to $8.52 billion for the third quarter of 2023. Analysts are projecting revenue of $8.53 billion for Q3. In the second quarter of 2023, revenues increased 3% YoY to $8.2 billion.

Earnings

Netflix has guided for net income of $1.58 billion, or $3.52 per share, in Q3 2023. This compares to net income of $1.4 billion, or $3.10 per share reported in the same period last year. Analysts are predicting EPS of $3.50 for Q3. In Q2 2023, net income amounted to $1.48 billion, or $3.29 per share.

The company has guided for operating income of $1.89 billion and operating margin of 22.2% for the third quarter of 2023. This compares to operating income of $1.53 billion and operating margin of 19.3% in the year-ago quarter. In Q2 2023, operating income was $1.82 billion and operating margin was 22.3%.

Points to note

Netflix expects its revenue in the third quarter of 2023 to grow on the back of average paid membership growth. Revenue growth is expected to gain traction in the second half of the year, fueled by benefits from paid sharing and growth in the ad-supported plan.

Last month at an analyst event, the company said it has been seeing healthy retention rates. It also said there was a healthy mix between individual account signups and signups for extra member sub-accounts. In terms of its ad-tier, although the mix between the ad-tier and non-ad tier remains fairly healthy, Netflix appears to be seeing a bit more preference for ad-free plans.

Netflix expects average revenue per membership (ARM) on an FX-neutral basis to be flat to slightly down year-over-year in the third quarter, as it laps price increases from last year and as it has not had price increases in its largest revenue markets since the first half of last year.

Paid net additions for the third quarter are expected to be similar to the second quarter. Paid net additions were 5.9 million in Q2 2023.