Netflix (NFLX -2.11%) stock surged 12.8% in after-hours trading on Wednesday, following the video-streaming giant's release of its third-quarter results. That pop can be largely attributed to investors' delight that the company raced by Wall Street's consensus earnings estimate, driven by a solid jump in paid subscribers. Revenue was in line with analysts' expectations.

Here's an overview of Netflix's third-quarter results and fourth-quarter guidance, centered on six key metric categories.

1. Revenue grew 7.8%

In Q3, Netflix's revenue grew 7.8% year over year to $8.54 billion. This result was in line with the Wall Street consensus estimate, and slightly higher than the company's own guidance of $8.52 billion. 

Revenue growth was driven by a 9% increase in average paid subscriptions, offset by a 1% decline in average revenue per subscription. The company attributed the growth in average paid subscriptions to "the roll out of paid sharing; strong, steady programming; and the ongoing expansion of streaming globally."

2. Paid subscribers jumped by 8.8 million sequentially  

In Q3, the company added 8.8 million paid net subscribers relative to the prior quarter. It ended the quarter with 247.2 million global paid subscribers, up 11% year over year. This was a huge improvement over the year-ago period, when its paid net sub count grew 4.5% year over year.  

Growth drivers included the company's launch of a lower-priced, ad-supported subscription tier in late 2022, and the rollout of paid sharing earlier this year. The latter was launched as part of the company's crackdown on password sharing.

Sequentially, Netflix added paid net subscribers in all four of its regions: 

  • U.S. and Canada (UCAN) -- added about 1.75 million
  • Europe, Middle East, and Africa (EMEA) -- added about 3.95 million
  • Latin America (LATAM) -- added about 1.18 million 
  • Asia Pacific (APAC) -- added about 1.88 million

3. Operating income surged 25%

Operating income grew 25% year over year in the quarter to $1.92 billion, which boosted the operating margin (operating income divided by revenue) to 22.4% from 19.3% in the year-ago period. This result slightly exceeded the company's guidance of 22.2%.

4. Earnings per share (EPS) rose 20%

Net income was $1.68 billion, or $3.73 per share, up 20% from the year-ago period. This result easily beat the earnings per share of $3.49 that analysts had expected. It also topped the company's guidance of $3.52 per share. 

In Q3, Netflix's net income included $173 million from a noncash unrealized gain from foreign-exchange remeasurement on its euro-denominated debt. 

5. Cash flow from operations soared 258%

Cash generated from operations soared 258% year over year to $1.99 billion. Free cash flow was $1.89 billion, which is fourfold the year-ago period's result.

Netflix ended the quarter with $7.9 billion in cash and short-term investments and $13.9 billion in long-term debt.

6. Annual operating margin guidance raised to 20%

For Q4, management guided for:

  • Revenue of $8.69 billion, which would equate to growth of 11% year over year. This outlook fell a bit short of analysts' expectation of $8.77 billion.
  • Operating margin of 13.3%, compared with 7% in the year-ago period. 
  • EPS of $2.15, which would equate to nearly 18 times the year-ago result of $0.12. This outlook was in line with Wall Street's consensus estimate.

For fiscal year 2023, management raised its outlook:

  • It now expects operating margin of 20%, up from its prior forecast range of 18% to 20%. This would represent a 2-percentage-point increase from its 18% operating margin in fiscal year 2022.
  • It now expects free cash flow to be about $6.5 billion, up from its prior forecast of at least $5 billion. In fiscal year 2022, free cash flow was $1.6 billion. 

In short, Netflix turned in a robust quarter, with the bonus that it increased its annual guidance for operating margin and free cash flow.

Moreover, the video streamer's results in the fourth quarter and beyond should get a lift from its just-announced price increases, assuming customers accept them, which seems likely. Netflix said in its release that it's raising its prices in the U.S., U.K., and France for its basic and premium plans. Its pricing will stay the same for its ad-based and standard plans.