Despite last year’s Hollywood strikes having a limiting impact on its programming slate, Netflix managed to substantially exceed Wall Street’s financial expectations across all significant parameters in the third quarter. The platform accrued over five million new users, outperforming the predicted gain of 4.52 million subscribers. The company’s sales rose by 15% within the period, amounting to about $9.83 billion (roughly €9 billion), and earnings too saw an increase to $5.40 a share.
Owing to savvy strategies like controlling password sharing and introducing a cheaper, ad-supported subscription option, Netflix has amassed more than 60 million customers since May 2022. As a result, the company’s stock, which had plummeted fourfold due to a decline in growth in May 2022, rebounded with a surge of 5.4% in after-trading hours, totalling $724.89, which pacified investors’ prior worries about the entertainment industry.
“We successfully implemented our plan to restore growth”, stated Co-CEO Ted Sarandos. Adding further, the company projected a sales increase ranging from 11% to 13% for the next year, resulting up to an approximate $44 billion, via a combination of new subscriptions and raised prices. Netflix intends to hike prices in Spain and Italy and phase out a low-cost plan in Brazil during the current quarter.
The company’s newly-acquired subscribers predominantly hail from Europe, the Middle East, Africa, and the Asia-Pacific regions. Nevertheless, for the first time since 2023, Netflix saw its customer base shrink in Latin America. Even so, Netflix anticipates the total new subscribers in the last quarter to surpass this quarter’s count.
Yet some analysts remain sceptical about the sustainability of Netflix’s growth. Edward Jones analyst Dave Heger expressed that there seems to be a slowdown in subscriber growth. Additionally, doubts about the stock’s value are rising since a marked financial return from the company’s investments in advertising and video games hasn’t seen light yet. However, the leadership of Netflix remain optimistic, stating that the company will continue to capitalise from the clampdown on password sharing in the future.
Despite slow advancement in its advertising venture, Netflix has expressed a large-scale vision for the next few years. The firm is in the process of developing its unique ad technology and has already made a handful of agreements to market its ad-supported service in line with other online streaming platforms. It is anticipated that ad sales will witness a twofold increase in the upcoming year, according to co-CEO Greg Peters.
Increasing the enhancement of offerings for advertisers is prioritised for the coming years, says the company’s shareholder statement. Alongside, Netflix is also making strides in live broadcasting to boost the ad inventory it can offer to advertisers. A live boxing event scheduled for next month and two NFL games scheduled for Christmas Day are in the pipeline. From next year onwards, customers can expect three hours of live wrestling every week on Netflix.
Film production last year was stalled due to two major strikes in Hollywood which impacted the streaming giant’s programming this year. Despite the slow recovery, hits such as The Perfect Couple, the latest season of Emily in Paris, a narrative about the notorious Menendez brothers and films like Rebel Ridge and The Union, were well-received. Moreover, the last quarter boasts of a robust line-up with the return of its most viewed series ever – Squid Game.
The company is very optimistic about its offerings in 2025, with more seasons of shows such as Wednesday and Stranger Things, and the third installment of the Knives Out franchise. However, management has acknowledged that the increased expenditure on advertising and fresh content will decelerate the company’s profit growth. Although Netflix has seen its net profit multiply fourfold over the past five years, the operating margin is projected to rise only marginally by one per cent to 28 per cent in the upcoming year from the expected level in 2024.
The company noted, “We need to strike the right balance between immediate margin growth and making suitable investments into our venture. We strongly believe there’s substantial scope for boosting our margins over an extended period.”