Netflix, the streaming and production giant based in California, announced on October 17 that it gained over 5 million subscribers during the third quarter of 2024, building on the 8.8 million new users from the earlier quarters. This surge was driven by a strategy launched in mid-2023, which stopped password sharing, prompting more people to create their own accounts. The company also rolled out a budget-friendly, ad-supported subscription option aimed at cost-conscious customers.
Netflix introduced new content like The Perfect Couple, Nobody Wants This, and Tokyo Swindlers, along with returning favorites like Emily in Paris and Cobra. Additionally, the platform expanded its documentary and smaller-scale programming, helping maintain high user engagement, a key metric the company uses to measure satisfaction. Viewership increased throughout the first three quarters of 2024.
In a letter to shareholders, Netflix stated that engagement was steady at around two hours per day per paid user, despite the impact of the password-sharing crackdown. The company explained that paid sharing led to less usage of shared accounts since fewer individuals had access.
Netflix's broader content offerings also enabled price increases in the previous year, with the Basic plan rising by $2 per month and the Premium plan by $3, marking the second price hike since early 2022. These new subscriptions and price adjustments boosted both Netflix's revenue and profits. Revenue for the third quarter saw a 15% growth, reaching $9.78 billion, surpassing analysts’ forecasts.
Revenue growth was strong across all regions, with the U.S. and Canada seeing a 16% annual increase, and international markets growing by 16% annually as well. Particularly strong was the Asia-Pacific region, where revenue rose by 19%, driven by local content additions.
Looking ahead to 2025, Netflix gave positive projections, expecting fourth-quarter revenue to hit $10.13 billion, with full-year revenue between $43 and $44 billion, reflecting an average 12% increase over 2024.
The company’s revenue growth has been steady, rising from 7.8% in Q3 2023 to 15% in the latest quarter, which in turn improved operating margins from 22.4% to 29.6%. More importantly for shareholders, free cash flow (FCF) increased from $1.9 billion in Q3 2023 to $2.2 billion in Q3 2024, with expectations of $6 billion to $6.5 billion in FCF for the full year.
Free cash flow is crucial for investors, as it funds dividend payments and share buybacks. During the third quarter, Netflix repurchased 2.6 million shares for $1.7 billion and plans to allocate another $3.1 billion for future buybacks.
Netflix’s strong financial results and optimistic outlook were well-received by investors, sending the company’s shares up by 10.5% in early Friday trading. These gains contributed to a broader tech stock rally, which was also spurred by positive results from Taiwanese semiconductor company TSM.
Despite these gains, analysts have urged caution, as they may be due to "short covering"—the repurchasing of shares by traders who had bet against the stock ahead of the earnings report.
Still, Dave Novosel, a bond analyst from Gimme Credit, remains positive about Netflix’s future. He noted that the company’s 15% revenue growth in Q3 was impressive, with subscription growth exceeding 14% year-over-year. While average revenue per membership was flat, every region except Latin America saw double-digit growth, and operating margins expanded significantly by more than 700 basis points.
Novosel also highlighted Netflix’s success
with its advertising strategy, which accounted for over 50% of sign-ups and saw
a 35% rise in Q3, boosting free cash flow and supporting the company’s share
buybacks. He doesn’t foresee Netflix’s growth slowing down anytime soon, with
management projecting a 15% revenue increase in Q4 and 11–13% growth in 2025.
However, he cautioned that while operating margins are expected to rise by five
percentage points in Q4, they will likely increase by only 100 basis points
next year as Netflix ramps up investment in its business.
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