Streaming media giant Netflix (NFLX 0.92%)reported third-quarter financial results on Thursday, Oct. 17, that showed 15% year-over-year revenue growth and more than 5 million subscriber additions in the quarter. Netflix's operating margin hit 29.6%, up from 23% a year earlier, reflecting efficient cost management. The company's net income increased 41%, driving diluted earnings per share (EPS) to $5.40 (up 45% year over year).
Overall, the quarter demonstrated strong financial performance, although potential challenges remain in sustaining membership growth and effectively monetizing Netflix's ad-supported tier.
| Metric | Q3 2024 | Q3 2023 | Change (YOY) |
|---|---|---|---|
| Revenue | $9.83 billion | $8.54 billion | 15% |
| Operating margin | 29.6% | 22.4% | 7.2 pps |
| Net income | $2.36 billion | $1.68 billion | 41% |
| Diluted EPS | $5.40 | $3.73 | 45% |
| Global paid memberships | 282.72 million | 247.15 million | 14.4% |
| Global streaming paid net additions | 5.07 million | 8.76 million | (42%) |
Source: Netflix. YOY = Year over year. pps = Percentage points.
Netflix's Business Overview
Netflix is a global streaming leader, offering a wide variety of shows, movies, and original content to its online subscribers. The company's core business relies on growing its subscription base across the globe. In recent years, Netflix has focused on expanding its content portfolio, enhancing user experience, and introducing ad-supported subscription tiers. These efforts are critical for the company's growth, especially as it navigates an increasingly crowded streaming landscape.
Recently, Netflix has prioritized its global membership engagement, content portfolio strength, and improvement in technology and user interface. The company's success hinges on maintaining subscriber growth and delivering content that attracts and retains audiences worldwide.
Quarterly Highlights
Netflix's revenue growth was driven by new membership in international markets and improving operating margins. The operating margin rose to 30%, a seven-point jump from Q3 2023. This improvement is attributed to higher revenue and cost management. It's also related to ongoing after-effects from last year's various entertainment-related employment strikes which limited show production.
Netflix reported net income of $2.36 billion in Q3, a 41% increase year over year. This represents a significant upside against management expectations. Similarly, streaming paid memberships rose 14% to 282.7 million, although the quarter's new paid net additions of 5.07 million were lower than the previous year's 8.76 million. This is partially tied to ongoing crackdowns on sharing subscriptions.
Netflix continues to add content to its portfolio with new seasons of series like Emily in Paris and Cobra Kai driving strong viewership. Meanwhile, new titles such as The Perfect Couple were successful in attracting audiences. The ad-supported tier saw a 35% increase in memberships quarter-on-quarter, despite some ad monetization challenges.
Management remains focused on addressing competitive pressures, aiming to further capitalize on its expanding international market presence. However, Netflix said it faces some headwinds in effectively monetizing its ad-supported tier. The company is investing in technological advancements aimed at enhancing its ad offerings.
Looking Ahead
As Netflix looks toward Q4 2024, management forecasts a 14.7% revenue increase year-over-year and targets a 21.6% operating margin. Upcoming releases of anticipated content such as Squid Game S2 and the streaming of two NFL games on Christmas Day may bolster memberships and viewership metrics. Seasonally, Q4 typically sees higher paid net additions.
Looking into 2025, Netflix management projects annual revenue between $43 billion and $44 billion, driven by membership and average revenue per membership growth. Management aims for a 28% operating margin, with continued investment in service offerings and technology in gaming and advertising. However, foreign exchange challenges, particularly in regions like Argentina, may affect future revenue.
