Netflix (NFLX) Q3 Earnings Beat, Revenues Rise Y/Y on User Gain

Netflix NFLX reported third-quarter 2023 earnings of $3.73 per share, which beat the Zacks Consensus Estimate by 7.8% and increased 20.3% year over year.

Revenues of $8.54 billion increased 7.8% year over year and beat the consensus mark by 0.11%.

The streaming giant gained 8.76 million paid subscribers globally, thanks to the rollout of paid sharing, strong and steady programming and the ongoing expansion of streaming globally. It gained 2.41 million paid subscribers in the year-ago quarter.

Ad-supported plan membership increased almost 70% quarter-over-quarter.

ARM decreased 1% year over year, both on a reported basis and a foreign-exchange neutral basis in the third quarter. ARM declined due to a higher mix of membership growth from lower ARM countries and limited price increases over the past 18 months.

At the end of the third quarter, Netflix had 247.15 million paid subscribers globally, up 10.8% year over year.

Although the company is suffering from growing competition from services provided by Amazon AMZN, Disney DIS and Apple AAPL, it benefited from a strong content portfolio in the reported quarter.

Hit shows like season 1 of One Piece, season 3 of The Witcher and Top Boy, Sex Education season 4, Love at First Sight, and local language shows like Dear Child (Germany), Sintonia season 4 (Brazil), Guns & Gulaabs season 1 (India) and Class Act (France) helped Netflix win subscribers.

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote

Shares of this Zacks Rank #3 (Hold) company have gained almost 13.38% in pre-market trading. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s shares have underperformed Amazon and Apple year to date but outperformed Disney. While Netflix shares have gained 17.4%, Amazon and Apple returned 52.5% and 35.3%, respectively. Disney shares have declined 2.5% year to date.

Netflix’s Segmental Revenue Details

The United States and Canada (“UCAN") reported revenues of $3.74 billion, which rose 3.7% year over year and accounted for 43.7% of total revenues. The figure missed our model estimate of $3.82 billion, primarily due to lower ARPU.

ARPU declined 0.5% from the year-ago quarter. On a foreign-exchange neutral basis, ARPU was unchanged year over year.

The paid subscriber base for UCAN increased 5.4% from the year-ago quarter to 77.32 million. The company gained 1.75 million paid subscribers compared with the year-ago quarter’s gain of 0.1 million.

Europe, Middle East & Africa (“EMEA”) reported revenues of $2.69 billion, which increased 13.3% year over year and accounted for 31.5% of total revenues. The figure beat our model estimate of $2.56 billion. ARPU increased 2% from the year-ago quarter on a foreign-exchange neutral basis.

The paid subscriber base for EMEA increased 13.9% from the year-ago quarter to 83.76 million. Netflix gained 3.95 million paid subscribers compared with the year-ago quarter’s net gain of 0.57 million.

Latin America’s (“LATAM”) revenues of $1.14 billion increased 11.6% year over year, contributing 13.4% of total revenues. The figure beat our model estimate of $1.08 billion.

ARPU increased 8% from the year-ago quarter on a foreign-exchange neutral basis.

The paid subscriber base for LATAM rose 9.3% from the year-ago quarter to 43.65 million. It gained 1.18 million paid subscribers in the reported quarter.

Asia Pacific’s (“APAC”) revenues of $948 million increased 6.6% year over year and accounted for 11.1% of total revenues. The figure beat our model estimate of $919.3 million.

ARPU decreased 6% year over year on a foreign-exchange neutral basis.

The paid subscriber base for APAC jumped 17.1% from the year-ago quarter to 42.43 million. The company added 1.88 million paid subscribers in the quarter.

Operating Details

Marketing expenses decreased 1.6% year over year to $558.7 million. As a percentage of revenues, marketing expenses decreased 60 basis points (bps) to 6.5%.

Operating income increased 25% year over year to $1.92 billion. Operating margin expanded 310 bps on a year-over-year basis to 22.4%.

Balance Sheet & Free Cash Flow

Netflix had $7.87 billion of cash and cash equivalents as of Sep 30, 2023 compared with $8.58 billion as of Jun 30, 2023.

Total debt was $14.3 billion as of Sep 30, 2023 compared with $14.47 billion as of Jun 30, 2023.

Streaming content obligations were $19.65 billion as of Sep 30, 2023 compared with $20.90 billion as of Jun 30, 2023.

Netflix reported a free cash flow of $1.89 billion compared with a free cash flow of $1.34 billion in the previous quarter.

It repurchased $2.5 billion worth of shares in the reported quarter.

Guidance

For the fourth quarter of 2023, Netflix forecasts earnings of $3.73 per share, indicating an almost 20.3% increase from the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for the same is pegged at $2.24 per share, currently lower than the company’s expectation.

Total revenues are anticipated to be $8.69 billion, suggesting growth of 10.7% year over year or 12% on a foreign-exchange neutral basis. The consensus mark for revenues stands at $8.76 billion, higher than the company’s expectation and indicating 11.59% growth from the figure reported in the year-ago quarter.

The quarterly operating margin is projected at 13.3% compared with the 19.3% reported in the year-ago quarter.

Netflix expects paid net additions to be similar to third-quarter 2023. Global ARM in the fourth quarter is expected to be roughly flat year over year, primarily due to limited price increases over the last 18 months.

For 2023, the company expects the operating margin to be 20%. It expects to generate a free cash flow of at least $6.5 billion, higher than its previous guidance of $5 billion.

Netflix increased its share repurchase authorization to $10 billion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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