Netflix stock secures new record after earnings, subscriber growth top estimates

Netflix ( NFLX ) stock ended Friday's trading session 11% higher, pushing shares to a new record above $760, after the streaming giant reported third-quarter EPS and revenue estimates and forecast sales for the current quarter that came in ahead of Wall Street expectations.

Revenue hit $9.83 billion in Q3, beating the Bloomberg consensus estimate of $9.78 billion, Netflix reported after the market closed on Thursday, a 15% increase over the same period last year. The increase comes as streamers lean on revenue initiatives like crackdowns on password sharing and ad-supported tiers, in addition to last year's price hikes in some subscription plans.

Netflix guided for fourth-quarter revenue of $10.13 billion, a beat compared to the consensus estimate of $10.01 billion.

For full-year 2025, the company is hitting revenue between $43 billion and $44 billion, compared to consensus estimates of $43.4 billion. This would represent an increase of 11% to 13% from the company's expected 2024 revenue guidance of $38.9 billion.

It expects a full-year operating margin of 27%, up from 26% previously, after the metric hit about 30% in the third quarter.

Earnings per share (EPS) also beat estimates for the quarter, with the company reporting EPS of $5.40, above the consensus estimate of $5.16 and well ahead of the $3.73 EPS figure reported in the year-ago period. Netflix guided for fourth-quarter EPS of $4.23, ahead of the consensus call for $3.90.

Subscribers grew stronger with breakout programming like “The Perfect Couple” and “Nobody Wants This” adding more than 5 million subscribers.

The 5.07 million subscriber additions beat expectations of 4.5 million and followed the 8.05 million net additions streamers added in the second quarter. The company added 8.8 million paid users in Q3 2023.

“We expect net additions paid to be higher in Q3'24 than in Q4 due to normal seasonality and a strong content slate,” the company said, citing upcoming releases such as “Squid Game” Season 2, the Jake Paul vs. Mike Tyson fight. , and two NFL games on Christmas Day.

Investors appreciated the company's foray into sports and live events. Meanwhile, its advertising levels continue to gain traction, accounting for more than 50% of sign-ups in countries where it's offered in the third quarter.

“We continue to build our advertising business and improve our offering to advertisers,” the company said in the earnings release “Ad subscriptions grew 35% in the quarter, and our ad technology platform is on track to launch in Canada in Q4 and more broadly in 2025.”

Last quarter, Netflix revealed that it had “150% plus growth in advance ad sales commitments through 2023.” The company previously said its goal is to make ads “a more significant revenue stream that contributes to sustainable, healthy revenue growth through 2025 and beyond.”

On the earnings call, Netflix co-CEO Greg Peters said that while ads won't be the primary driver of revenue next year because “we're still scaling faster than our ability to monetize that audience and that inventory,” the company sees an “opportunity to close that gap.”

Leading up to the results, Netflix's stock has been on a tear, with shares up nearly 45% since the start of the year and trading near all-time highs.

Analysts expect another price hike by the end of the year, which will likely act as another catalyst for shares. But the stock's recent run-up has caused some concern on Wall Street.

Will the price go up?

The company recently revealed that subscribers watched 94 billion hours on the platform from January to June as part of its latest biannual viewership report, although engagement levels were fairly flat year-over-year — a potential headwind in terms of pricing power, which is especially important for streaming companies. has arisen because consumers have become more selective.

According to Deloitte's latest Digital Media Trends report, US consumers subscribe to an average of four streaming services and spend about $61 per month. Retaining loyal customers over time is a challenge as consumers opt out or cancel their subscription plans.

Netflix last raised the price of its Standard plan in January 2022, raising the monthly cost from $13.99 to $15.49. It also raised the price of its premium tier by $2 to $19.99 per month at the same time; The company raised the cost of that plan again last October to $22.99.

The company has yet to raise the price of its ad-supported offering, which, launched less than two years ago, is one of the cheapest ad plans among all major streaming players at $6.99 per month.

“Given Netflix's low cost per watch hour, we see an opportunity for the firm to grow its US prices by 12% in 2025,” Citi analyst Jason Bazinet said before the report.

The company recently phased out its lowest-priced ad-free streaming plan, making the $15.49 standard plan its cheapest offering for an ad-free experience.