Netflix (NFLX -0.97%) stock jumped 13.1% on Wednesday, following the video streaming giant's release on the prior afternoon of its third-quarter results that were better than many investors were likely expecting. The quarter's revenue, earnings, and net subscriber additions surpassed Wall Street's estimates.

Here is an overview of Netflix's third quarter, along with its outlook, centered on six key metric categories.

1. Revenue grew 6%

Netflix's quarterly revenue grew 6% year over year (and 13% in constant currency) to $7.93 billion. This result exceeded the $7.85 billion Wall Street consensus estimate.

Revenue growth was driven by a 5% increase in average paid subscriptions and a 1% rise (8% in constant currency) in average revenue per subscriber. 

Sequentially, revenue edged down a slight 0.5% from the second quarter. However, this decline was entirely due to the continued strengthening of the U.S. dollar relative to other currencies.

2. Paid net subscribers increased 2.41 million 

In Q3, paid net subscriber growth was 2.41 million. That's down from 4.4 million in the year-ago period but much better than the 1 million the company had forecast and analysts were expecting. Netflix ended the quarter with 223.09 million global paid subscribers, up about 5% year over year.

The third quarter was the first one this year that paid subscribers count grew, as it declined about 200,000 and 970,000 in the first and second quarters, respectively.

Netflix added paid subs in all regions, including in its U.S./Canada region, which is more challenging to do because of its higher penetration rate. It gained approximately 100,000 new paid subs in this region, bringing its total to 73.4 billion. The company lost about 640,000 and 1.3 million subs in this market in the first and second quarters, respectively.

Sub growth likely got a tailwind from the company's launch in the third quarter of some big hit TV series and films, including Monster: The Jeffrey Dahmer Story, Stranger Things season 4, Extraordinary Attorney Woo, The Gray Man, and Purple Hearts.

3. Operating income declined 17%

In Q3, operating income decreased 17% year over year to $1.5 billion, which translated to the operating margin (operating income divided by revenue) declining from 23% to 19%. This margin decline was almost entirely due to the brisk currency headwinds. 

Operating results were better than management's guidance, which was for an operating margin of 16%.

4. EPS edged down 3% but beat expectations

Net income was $1.4 billion, or $3.10 per share, down 3% from the year-ago period. This result surpassed the earnings per share (EPS) of $2.13 that analyst had expected.

The quarter's net income got a boost of $348 million from a noncash unrealized gain from foreign-exchange remeasurement on the company's euro-denominated debt.

5. Cash flow from operations skyrocketed 579%

In Q3, cash generated from operations rocketed 579% year over year to $557 million. Free cash flow was $472 million, compared with -$106 million in the year-ago period.

Netflix ended the quarter with $6.1 billion in cash and $14 billion in debt.

6. In Q4, management expects 4.5 million paid net sub additions 

Management expects currency headwinds to remain strong throughout the rest of the year. Its fourth-quarter guidance included these points:

  • Revenue of $7.78 billion, which equates to 0.9% year-over-year growth and 9% year-over-year growth in constant currency. (The expected slight sequential decline is due entirely to the continued relative strengthening of the U.S. dollar.) 
  • Paid net subscriber additions of 4.5 million, versus 8.3 million in the year-ago period.
  • Average revenue per sub growth of 6% year over year in constant currency.
  • Operating margin of 4%, versus 8% in the year-ago period. Excluding the impact of foreign exchange, operating margin is expected to be 10%. 
  • EPS of $0.36, versus $1.33 in the year-ago period.

A good quarter with a new revenue source coming soon

In short, Netflix had a solid quarter, with sub growth and cash flow being particular bright spots. Investors can expect that its results will start to get a material boost in 2023 from its launch of a lower-cost, ad-supported subscription plan. New plans will be available in 12 markets on Nov. 3.