Market Analysis

Netflix leads in subscriber goals while growing ad-tier signups

Amos Simanungkalit · 18 Oct 20248.5K Views

Netflix gained 5.1 million streaming subscribers in the third quarter, exceeding Wall Street's expectations by over 1 million, and anticipates even greater customer growth during the holiday season with the return of the popular Korean drama "Squid Game."

Following the earnings announcement, Netflix shares (NASDAQ) rose 4.8% in after-hours trading, reflecting a 47% increase so far this year.

As the rate of new subscriber growth begins to slow, Netflix is shifting its focus from subscriber counts to metrics like revenue growth and profit margins. The company plans to stop reporting subscriber figures starting next year and is highlighting the success of its ad-supported plans.

In its recent announcement, Netflix revealed that its ad-supported service accounted for over 50% of new sign-ups in regions where it is available. Wall Street analysts, who had projected 4 million new subscribers from July to September, were surprised by the higher figure. During this quarter, Netflix released new content, including the murder mystery "The Perfect Couple" and the romantic comedy "Nobody Wants This."

Netflix reported earnings of $5.40 per share, surpassing the consensus estimate of $5.12, and achieved an operating margin of 30%, up from 22% a year earlier. Revenue increased to $9.825 billion, slightly ahead of the $9.769 billion forecast.

"Forrester analyst Mike Proulx remarked that Netflix is showing positive trends overall, with rising revenue and operating margins and reduced expenses." However, he expressed concern over the significant decline in new subscribers compared to the 8.76 million added in the same quarter last year, noting that while there is potential for growth internationally, the U.S. market appears saturated.

Netflix anticipates customer growth in the final quarter of the year—historically a strong season—will exceed that of the September quarter, although specific figures were not provided. The highly anticipated second season of "Squid Game" is set to premiere in late December.

"We're feeling really good about the business," Co-CEO Ted Sarandos said in a video following the earnings report. "We had a plan to re-accelerate the business, and we delivered on that plan."

“CRAWL, WALK, RUN”

The company reported an increase in programming output following last year's Hollywood strikes, with average engagement time on Netflix reaching two hours per day per member.

While subscriber growth has been noted in the ad-supported tier, Netflix does not expect advertising to become a major growth factor until 2026. Magalie Grossheim, a senior equity research analyst at M Science, commented on the steady increase in the adoption of the ad-supported plan in mature markets, noting, "They consistently remind us of crawl, walk, run, and I think it's still just the beginning."

Part of Netflix's strategy includes hosting live events, particularly sports, to attract advertisers. In November, the platform will stream a boxing match between YouTube star Jake Paul and Mike Tyson, along with two NFL games on Christmas Day.

Additionally, the company plans to raise prices in Spain and Italy starting Friday and has already increased prices in several European markets and Japan earlier this month.

Sarandos has dismissed the idea of bundling Netflix with other streaming services, such as those from Walt Disney (NYSE) and Warner Bros Discovery (NASDAQ). "What we're focused on is adding more and more value to this package," he stated on Thursday, describing this approach as a "comfortable model" for traditional media companies.