Netflix Stock Reaches New Heights After Strong Earnings and Subscriber Growth

October 18, 2024 – Netflix Inc. (NFLX) finished Friday’s trading session with an impressive gain of 11%, driving its stock price above $760—a new record for the streaming giant. This surge follows the company’s announcement of its third quarter earnings, where it exceeded earnings per share (EPS) and revenue estimates, alongside promising subscriber growth projections.

Strong Financial Performance

After the market closed on Thursday, Netflix reported Q3 revenue that surpassed Bloomberg’s consensus estimates of $9.78 billion, reaching $9.83 billion. This figure reflects a 15% increase compared to the same period last year. Key to this success were Netflix’s strategic initiatives, including a crackdown on password sharing, the introduction of an ad-supported tier, and previous price hikes on certain subscription plans.

Looking ahead, Netflix has guided for fourth quarter revenues of $10.13 billion, slightly above the consensus estimate of $10.01 billion. For the full year of 2025, the company anticipates revenues will range between $43 billion and $44 billion, compared to consensus estimates of $43.4 billion. This forecast marks an expected growth of 11% to 13% from the projected 2024 revenue guidance of $38.9 billion. Furthermore, Netflix estimates full-year operating margins will increase to 27%, up from the prior forecast of 26%, after achieving nearly 30% in Q3. ## Earnings and Subscriber Growth

Netflix’s diluted EPS also outperformed market expectations, reporting a figure of $5.40 compared to the predicted $5.16. This is a significant increase from the $3.73 EPS reported in the same quarter last year. For Q4, the company projects an EPS of $4.23, ahead of the consensus estimate of $3.90. Subscriber growth continues to be a bright spot for Netflix, with the company gaining over 5 million new subscribers in Q3, landing at 5.07 million—exceeding expectations of 4.5 million. Notably, this follows the impressive addition of 8.05 million subscribers in the second quarter. Netflix observed substantial contributions from successful programming, including titles like "The Perfect Couple" and "Nobody Wants This."

Additionally, Netflix expects higher paid net additions in Q4 than in Q3, attributing this to typical seasonal trends and a robust upcoming content slate featuring anticipated releases like "Squid Game" Season 2 and the Jake Paul vs. Mike Tyson fight.

Advancements in Advertising and Content Strategy

Investors are also taking note of Netflix’s expanding portfolio in sports and live events, as well as the growing traction of its ad-supported subscription tier. During Q3, this tier accounted for more than 50% of new sign-ups in regions where it’s available. Netflix reported a 35% quarter-on-quarter increase in ad membership, with plans to enhance its ad technology platform, set to launch in Canada in Q4 2024 and more broadly in 2025. On the earnings call, co-CEO Greg Peters acknowledged the upward trends in their advertising segment but noted that while it won’t be a major revenue driver in the near term, the company sees significant opportunities for growth. Netflix recently disclosed a 150% increase in upfront ad sales commitments for 2023, reinforcing its vision of making ads a substantial revenue stream.

Market Sentiment and Future Outlook

Netflix’s stock has seen a substantial increase in value, rising approximately 45% since the start of 2024 and trading close to historic highs. Market analysts have speculated about a potential price hike for subscriptions before the year’s end, which could act as another catalyst for further increases in stock prices.

While Netflix’s viewership report indicated that users watched over 94 billion hours of content from January to June, the engagement levels year-over-year remained flat, raising some concerns about potential pricing power in an increasingly competitive streaming market.

As Netflix continues to execute its strategic initiatives and adapt to evolving market conditions, investors will be keenly watching how these developments unfold and impact the company’s performance moving forward.