After-hours surge by 5%, Netflix's Q3 performance is all positive! Profits exceed expectations by nearly 45%, with a surprising increase of over 500,000 subscribers

Streaming giant Netflix delivered an impressive third-quarter report card: both revenue and profit saw double-digit growth exceeding expectations, with operating profit margin accelerating and the slowdown in subscriber growth lower than Wall Street's expectations. At the same time, Netflix's revenue guidance for the fourth quarter is significantly stronger than expected, and the annual guidance for this year has been slightly raised.

The only dim spot in the bright performance is that Netflix's paid user growth in the largest market of the United States and Canada fell short of expectations for the quarter, but this slowdown was offset by the unexpected surge in users in the Asia-Pacific region.

After the U.S. stock market closed on Thursday, October 17th, Netflix announced its financial data for the third quarter of 2024 and provided performance guidance for the fourth quarter of 2024 and the full year of 2025.

1) Key Financial Data:

Revenue: Revenue for the third quarter was $9.825 billion, a 15% year-on-year increase. Analysts expected $9.78 billion, while the company guided for a 13.9% increase to $9.727 billion. Revenue grew by nearly 17% year-on-year in the second quarter.

EPS: Diluted earnings per share (EPS) for the third quarter were $5.40, a 44.8% year-on-year increase. Analysts expected $5.16, while the company guided for $5.10. EPS grew by 48% year-on-year in the second quarter.

Operating Profit: Operating profit for the third quarter was $2.909 billion, a 51.8% year-on-year increase. Analysts expected $2.72 billion, while the company guided for $2.73 billion. Operating profit margin for the third quarter was 29.6%, up 7.2 percentage points year-on-year. Analysts expected 27.8%, while the company guided for 28.1%. Operating profit margin increased by 4.9 percentage points to 27.2% in the second quarter.

Net Profit: Net profit for the third quarter was $2.364 billion, a 41% year-on-year increase. The company guided for $2.237 billion, an increase of 44.3% from the second quarter.

Subscriber: Netflix added a net of 5.07 million streaming paid subscribers in the third quarter, a 42% year-on-year decrease. Analysts expected an increase of 4.52 million, while the second quarter saw a net addition of 8.05 million subscribers. The total number of paid members at the end of the quarter was 282.7 million, with analysts expecting 282.15 million.

2) Performance Guidance:

Revenue: Revenue for the fourth quarter is expected to be $10.13 billion, with analysts expecting $10.05 billion. Revenue for 2025 is projected to be between $43 billion and $44 billion, with analysts expecting $43.4 billion.

EPS: Diluted EPS for the fourth quarter is expected to be $4.23, with analysts expecting $3.90.

Operating Profit: Operating profit for the fourth quarter is expected to be $2.19 billion, with an operating profit margin of 21.6%. Analysts expected 21.2%. The target operating profit margin for 2025 is 28%.

Net Profit: Net profit for the fourth quarter is expected to be $1.847 billion.

After the financial report was released, Netflix's stock price fell by about 2% on Thursday and then rose in after-hours trading, with the post-market increase reaching 5%.

Operating Profit Crushes Expectations, Q4 Revenue Expected to Increase by 15%, Full-Year Guidance Slightly Raised, Next Year's Revenue Growth to Slow Down

The financial report shows that Netflix's revenue and EPS in the third quarter maintained growth rates of over 10% and 40% respectively, with the operating profit growth rate accelerating from over 40% in the third quarter to over 50%, surpassing Wall Street expectations and the guidance provided by Netflix in the second quarter earnings report. Analysts expect a 42% growth in operating profit for the third quarter, while Netflix's guidance predicts a 42.5% increase.

In the third quarter, Netflix's operating profit margin increased by 7.2 percentage points year-on-year, equivalent to a 32% growth, reaching 29.6%, surpassing analysts' expected growth of 24% and Netflix's guidance of 25.4%.

Looking ahead to the fourth quarter, Netflix expects revenue to exceed $10 billion, slightly surpassing analysts' expectations by about 8%. Netflix's projected EPS and operating profit for the fourth quarter are lower than the third quarter, but both are higher than analysts' expectations. The EPS guidance for the quarter is about 8.5% higher than analysts' expectations, while the operating profit margin guidance is nearly 2% higher.

In July, when Netflix released its second-quarter earnings report, the company raised the lower end of its annual revenue guidance range from an expected growth of 13% to 15% to 14% to 15%. This week, Netflix slightly raised its full-year revenue guidance again. Netflix stated that the guidance for the fourth quarter implies a 15% year-on-year revenue growth, and the full-year revenue growth rate for 2024 will be at the high end of the previously provided guidance.

Due to the slight upward adjustment in this year's revenue guidance, Netflix currently expects the operating profit margin for the year to be higher than the previous guidance, increasing from 26% to 27%.

For the 2025 guidance, Netflix stated that it implies an annual revenue growth of 11% to 13%, slightly higher than analysts' expectations. Netflix mentioned that next year's revenue will be driven by paid membership numbers and average revenue per member (ARM), with an operating profit margin of 28% slightly higher than this year's guidance of 27%.

Third-Quarter Subscriber Growth Rate Exceeds Analysts' Expectations by 12%, Slows Down in the US and Canada Beyond Expectations

Starting from 2025, Netflix will no longer report new subscriber data and ARPU (average revenue per user) metrics to investors, a move that had previously raised concerns among investors about Netflix's long-term user growth trend. Netflix stated that the adjustment is due to the company's future focus shifting from subscriber growth to revenue and operating profit margin as the main financial indicators, measuring customer satisfaction through user engagement (i.e., time spent on the platform).

The subscriber growth rate announced by Netflix this time saw a significant year-on-year decline, still remaining above market expectations. The addition of subscribers in the third quarter exceeded analysts' expectations by an additional 550,000, representing a 12% higher increase than analysts' expectations. However, in terms of regions, Netflix's growth in the most mature and largest market, the United States and Canada, slowed down beyond expectations. Specific data is as follows:

In the third quarter, net additions of subscribers in the United States and Canada (UCAN) were 690,000, a year-on-year decrease of 61%, while analysts had expected an increase of 696,658.

In the third quarter, the Europe, Middle East, and Africa region (EMEA) added 2.17 million net subscribers, a year-on-year decrease of 45%, compared to analysts' expected increase of 1.44 million In the third quarter, the net decrease in subscription users in Latin America was 70,000, while analysts expected an increase of 975,270. A year ago, the net increase in users in that region was 1.18 million.

Source: Wall Street News