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Netflix Q3 Earnings Beat, Revenues Rise Y/Y on Subscriber Gain
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Netflix (NFLX - Free Report) reported third-quarter 2024 earnings of $5.40 per share, which beat the Zacks Consensus Estimate by 6.09%. The figure jumped 44.8% from the year-ago quarter.
Revenues of $9.82 billion increased 15% year over year and beat the consensus mark by 0.6%.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The company has maintained healthy engagement levels in the third quarter, with about two hours of viewing per member per day, indicating strong member retention.
On the ads front, ads tier membership grew 35% quarter over quarter. Netflix is building an in-house ad tech platform that will be tested in Canada in the fourth quarter and will launch more broadly in 2025.
Average paid memberships increased 15% year over year. The company added 5.07 million subscribers during its third quarter, with its ad-supported service accounting for more than 50% of sign-ups in countries where it was available. This compares unfavorably with 8.76 million net new subscribers in the year-ago period, reflecting a waning impact from a crackdown on password sharing between customers that kicked off in 2023.
Average revenue per membership (ARM) was flat year over year and up 5% on foreign-exchange neutral basis in the third quarter.
At the end of the third quarter, Netflix had 282.72 million paid subscribers across more than 190 countries globally, up 14.4% year over year.
This Zacks Rank #3 (Hold) company credited third-quarter gains to the strength of its intellectual property, including a wide variety of hit series like The Perfect Couple (65.2 million views), Monsters: The Lyle and Erik Menendez Story (54.6 million views), coupled with The Menendez Brothers documentary in October (24.2 million views), Nobody Wants This (37 million views) and Simone Biles: Rising (19 million views). Other series that also contributed to the company’s third-quarter results are The Accident from Mexico (37.2 million views), Desperate Lies from Brazil (19.5 million views), Breathless from Spain (17.3 million views), Tokyo Swindlers from Japan (10.5 million views) and Culinary Class Wars from Korea (11 million views). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other series with returning seasons that contributed to the company’s third-quarter results are Emily in Paris season 4 (51 million views), Selling Sunset season 8 (10.9 million views), Too Hot to Handle season 6 (10.2 million views), Cobra Kai season 6 (36.5 million views), Umbrella Academy (25.5 million views for its final season, 326 million across all seasons ) and Elite (12.2 million views for its final season, 494 million across all seasons).
Audiences were enthralled by films, including The Union (111.9 million views), Rebel Ridge (104.7 million views), Beverly Hills Cop: Axel F (87.5 million views), Vanished into the Night (Italy, 39.2 million views), Officer Black Belt (South Korea, 32.8 million views), Maharaja (India, 22.6 million views) and Blame the Game (Germany, 22.4 million views).
Netflix is now looking to expand into new areas, such as live events, including the Mike Tyson and Jake Paul boxing match on Nov. 15 and two Christmas Day NFL games, with the Kansas City Chiefs facing the Pittsburgh Steelers, and the Baltimore Ravens facing the Houston Texans.
In the fourth quarter, members will be able to choose from hit returning series Squid Game S2, Outer Banks S4 and Love is Blind S7, as well as new dramas like Black Doves from the United Kingdom and comedies like No Good Deed and Man on The Inside. In Latin America, the company has two of the biggest shows ever made in the region premiering this winter, namely, 100 Years of Solitude (based on the iconic novel by Gabriel García Márquez from Colombia) and Senna (a biopic about one of the greatest Formula 1 drivers of all time from Brazil).
Netflix’s unscripted offerings include Aaron Rodgers: Enigma, which chronicles the life and career of the NFL legend, and the second season of the music competition series Rhythm + Flow. The company’s film slate includes action-thriller Carry-On, war drama The Six Triple Eight and Spellbound produced by John Lasseter.
NFLX will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025. While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do. Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures.
Shares of NFLX have returned 41.2% in the year-to-date period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. Apple, Amazon, Disney and the sector have returned 20.6%, 23.4%, 7.2% and 6.9%, respectively.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $4.32 billion, which rose 15.7% year over year and accounted for 44% of total revenues. ARPU increased 4.7% from the year-ago quarter.
The paid subscriber base for UCAN increased 9.7% from the year-ago quarter to 84.4 million. The company gained 0.69 million paid subscribers compared with the year-ago quarter’s gain of 1.75 million.
Europe, Middle East & Africa (EMEA) reported revenues of $3.13 billion, which increased 16.3% year over year and accounted for 31.9% of total revenues. ARPU increased 0.1% from the year-ago quarter.
The paid subscriber base for EMEA climbed 14.8% from the year-ago quarter to 96.13 million. Netflix gained 2.16 million paid subscribers compared with the year-ago quarter’s net gain of 3.95 million.
Latin America’s (LATAM) revenues of $1.24 billion increased 8.6% year over year, contributing 12.6% of total revenues. ARPU decreased 5.1% from the year-ago quarter.
The paid subscriber base for LATAM rose 12.7% from the year-ago quarter to 49.18 million. It lost 0.06 million paid subscribers in the reported quarter, while the company gained 1.17 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.12 billion jumped 18.9% year over year and accounted for 11.5% of total revenues. ARPU decreased 4.1% year over year.
The paid subscriber base for APAC jumped 24% from the year-ago quarter to 52.6 million. The company added 2.28 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 15.1% year over year to $642.9 million. As a percentage of revenues, marketing expenses remained flat year over year.
Operating income increased 51.8% year over year to $2.9 billion. Operating margin expanded 720 basis points on a year-over-year basis to 29.6%.
Balance Sheet & Free Cash Flow
Netflix had $7.45 billion of cash and cash equivalents as of Sept. 30, 2024, compared with $6.24 billion as of June 30, 2024.
Total debt was $15.98 billion as of Sept. 30, 2024, compared with $14.3 billion as of June 30, 2024. Netflix raised $1.8 billion in its first investment grade bond deal during the third quarter.
Streaming content obligations were $22.7 billion as of Sept. 30, 2024, compared with $23.31 billion as of June 30, 2024.
Netflix reported a free cash flow of $2.19 billion compared with a free cash flow of $1.21 billion in the previous quarter.
During the quarter, Netflix repurchased 2.6 million shares for $1.7 billion and has $3.1 billion remaining under existing authorization.
Guidance
For the fourth quarter of 2024, Netflix forecasts revenues to increase 15%, which equates to 17% growth on an F/X neutral basis.
The company anticipates total revenues to be $10.12 billion, suggesting growth of 14.7% year over year. The consensus mark for revenues is pinned at $10.02 billion, lower than the company’s expectation.
NFLX has projected earnings of $4.23 per share. The Zacks Consensus Estimate for the same is pegged at $3.86 per share, currently lower than the company’s expectation.
Netflix expects paid net additions to be higher sequentially in the fourth quarter due to normal seasonality and a strong content slate. The company projects fourth-quarter operating margin of 22%, indicating an improvement of five percentage point year over year.
Netflix’s fourth-quarter guidance implies that revenue will grow 15% year over year for 2024, at the high end of the company’s prior 14-15% revenue growth expectation. Given the slightly higher revenue forecast, NFLX is now forecasting 2024 operating margin of 27% based on F/X rates as of Jan. 1, 2024, and on a reported basis, up from 26% previously. This would represent a six percentage point increase compared with the full-year 2023.
For 2025, based on F/X rates as of Sept. 30, 2024, Netflix has forecasted revenues of $43-$44 billion, indicating growth of 11-13% from 2024 revenue guidance of $38.9 billion. Netflix expects revenue growth to be driven by a healthy increase in paid memberships and ARM. The company is targeting a 2025 operating margin of 28% (also based on F/X rates as of Sept 30, 2024) compared with a forecast for 27% in 2024.
Netflix is seeing significant growth in its advertising business, with ads revenues expected to roughly double year over year in 2025.
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Netflix Q3 Earnings Beat, Revenues Rise Y/Y on Subscriber Gain
Netflix (NFLX - Free Report) reported third-quarter 2024 earnings of $5.40 per share, which beat the Zacks Consensus Estimate by 6.09%. The figure jumped 44.8% from the year-ago quarter.
Revenues of $9.82 billion increased 15% year over year and beat the consensus mark by 0.6%.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The company has maintained healthy engagement levels in the third quarter, with about two hours of viewing per member per day, indicating strong member retention.
On the ads front, ads tier membership grew 35% quarter over quarter. Netflix is building an in-house ad tech platform that will be tested in Canada in the fourth quarter and will launch more broadly in 2025.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Subscriber Growth Drives Revenues in Q3
Average revenue per membership (ARM) was flat year over year and up 5% on foreign-exchange neutral basis in the third quarter.
At the end of the third quarter, Netflix had 282.72 million paid subscribers across more than 190 countries globally, up 14.4% year over year.
This Zacks Rank #3 (Hold) company credited third-quarter gains to the strength of its intellectual property, including a wide variety of hit series like The Perfect Couple (65.2 million views), Monsters: The Lyle and Erik Menendez Story (54.6 million views), coupled with The Menendez Brothers documentary in October (24.2 million views), Nobody Wants This (37 million views) and Simone Biles: Rising (19 million views). Other series that also contributed to the company’s third-quarter results are The Accident from Mexico (37.2 million views), Desperate Lies from Brazil (19.5 million views), Breathless from Spain (17.3 million views), Tokyo Swindlers from Japan (10.5 million views) and Culinary Class Wars from Korea (11 million views). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other series with returning seasons that contributed to the company’s third-quarter results are Emily in Paris season 4 (51 million views), Selling Sunset season 8 (10.9 million views), Too Hot to Handle season 6 (10.2 million views), Cobra Kai season 6 (36.5 million views), Umbrella Academy (25.5 million views for its final season, 326 million across all seasons ) and Elite (12.2 million views for its final season, 494 million across all seasons).
Audiences were enthralled by films, including The Union (111.9 million views), Rebel Ridge (104.7 million views), Beverly Hills Cop: Axel F (87.5 million views), Vanished into the Night (Italy, 39.2 million views), Officer Black Belt (South Korea, 32.8 million views), Maharaja (India, 22.6 million views) and Blame the Game (Germany, 22.4 million views).
Netflix is now looking to expand into new areas, such as live events, including the Mike Tyson and Jake Paul boxing match on Nov. 15 and two Christmas Day NFL games, with the Kansas City Chiefs facing the Pittsburgh Steelers, and the Baltimore Ravens facing the Houston Texans.
In the fourth quarter, members will be able to choose from hit returning series Squid Game S2, Outer Banks S4 and Love is Blind S7, as well as new dramas like Black Doves from the United Kingdom and comedies like No Good Deed and Man on The Inside. In Latin America, the company has two of the biggest shows ever made in the region premiering this winter, namely, 100 Years of Solitude (based on the iconic novel by Gabriel García Márquez from Colombia) and Senna (a biopic about one of the greatest Formula 1 drivers of all time from Brazil).
Netflix’s unscripted offerings include Aaron Rodgers: Enigma, which chronicles the life and career of the NFL legend, and the second season of the music competition series Rhythm + Flow. The company’s film slate includes action-thriller Carry-On, war drama The Six Triple Eight and Spellbound produced by John Lasseter.
NFLX will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025. While tech giants like Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do. Disney (DIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures.
Shares of NFLX have returned 41.2% in the year-to-date period and outperformed Apple, Amazon, Disney and the Zacks Consumer Discretionary sector. Apple, Amazon, Disney and the sector have returned 20.6%, 23.4%, 7.2% and 6.9%, respectively.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $4.32 billion, which rose 15.7% year over year and accounted for 44% of total revenues. ARPU increased 4.7% from the year-ago quarter.
The paid subscriber base for UCAN increased 9.7% from the year-ago quarter to 84.4 million. The company gained 0.69 million paid subscribers compared with the year-ago quarter’s gain of 1.75 million.
Europe, Middle East & Africa (EMEA) reported revenues of $3.13 billion, which increased 16.3% year over year and accounted for 31.9% of total revenues. ARPU increased 0.1% from the year-ago quarter.
The paid subscriber base for EMEA climbed 14.8% from the year-ago quarter to 96.13 million. Netflix gained 2.16 million paid subscribers compared with the year-ago quarter’s net gain of 3.95 million.
Latin America’s (LATAM) revenues of $1.24 billion increased 8.6% year over year, contributing 12.6% of total revenues. ARPU decreased 5.1% from the year-ago quarter.
The paid subscriber base for LATAM rose 12.7% from the year-ago quarter to 49.18 million. It lost 0.06 million paid subscribers in the reported quarter, while the company gained 1.17 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.12 billion jumped 18.9% year over year and accounted for 11.5% of total revenues. ARPU decreased 4.1% year over year.
The paid subscriber base for APAC jumped 24% from the year-ago quarter to 52.6 million. The company added 2.28 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 15.1% year over year to $642.9 million. As a percentage of revenues, marketing expenses remained flat year over year.
Operating income increased 51.8% year over year to $2.9 billion. Operating margin expanded 720 basis points on a year-over-year basis to 29.6%.
Balance Sheet & Free Cash Flow
Netflix had $7.45 billion of cash and cash equivalents as of Sept. 30, 2024, compared with $6.24 billion as of June 30, 2024.
Total debt was $15.98 billion as of Sept. 30, 2024, compared with $14.3 billion as of June 30, 2024. Netflix raised $1.8 billion in its first investment grade bond deal during the third quarter.
Streaming content obligations were $22.7 billion as of Sept. 30, 2024, compared with $23.31 billion as of June 30, 2024.
Netflix reported a free cash flow of $2.19 billion compared with a free cash flow of $1.21 billion in the previous quarter.
During the quarter, Netflix repurchased 2.6 million shares for $1.7 billion and has $3.1 billion remaining under existing authorization.
Guidance
For the fourth quarter of 2024, Netflix forecasts revenues to increase 15%, which equates to 17% growth on an F/X neutral basis.
The company anticipates total revenues to be $10.12 billion, suggesting growth of 14.7% year over year. The consensus mark for revenues is pinned at $10.02 billion, lower than the company’s expectation.
NFLX has projected earnings of $4.23 per share. The Zacks Consensus Estimate for the same is pegged at $3.86 per share, currently lower than the company’s expectation.
Netflix expects paid net additions to be higher sequentially in the fourth quarter due to normal seasonality and a strong content slate. The company projects fourth-quarter operating margin of 22%, indicating an improvement of five percentage point year over year.
Netflix’s fourth-quarter guidance implies that revenue will grow 15% year over year for 2024, at the high end of the company’s prior 14-15% revenue growth expectation. Given the slightly higher revenue forecast, NFLX is now forecasting 2024 operating margin of 27% based on F/X rates as of Jan. 1, 2024, and on a reported basis, up from 26% previously. This would represent a six percentage point increase compared with the full-year 2023.
For 2025, based on F/X rates as of Sept. 30, 2024, Netflix has forecasted revenues of $43-$44 billion, indicating growth of 11-13% from 2024 revenue guidance of $38.9 billion. Netflix expects revenue growth to be driven by a healthy increase in paid memberships and ARM. The company is targeting a 2025 operating margin of 28% (also based on F/X rates as of Sept 30, 2024) compared with a forecast for 27% in 2024.
Netflix is seeing significant growth in its advertising business, with ads revenues expected to roughly double year over year in 2025.