Record-breaking Earnings Propel Netflix Stock
Netflix (NASDAQ: NFLX) has once more outdone itself, with a stellar Q3 earnings report catapulting its stock to unprecedented heights, soaring over 10%. The company continues to attract subscribers while diversifying its offerings into areas like gaming, advertising, and live events.
Investors, always vigilant about earnings, closely observed the revenue and profit spheres as Netflix remains a public entity. Yet, a little-known disclosure alteration set for 2025 could dramatically reshape how investors gauge the stock’s performance.
Robust Revenue Growth and Expanding Margins
In the third quarter, Netflix’s revenue surged 15% year over year to $9.8 billion, with the operating margin swelling to 30%, up from 22.4% a year prior. This uptick in margin indicates a rise in revenue without a substantial increase in content expenditure. Additionally, the company boasted strong free cash flow of over $2 billion in the period.
Other key metrics painted a positive picture – Netflix added more than 5 million subscribers, with growth evident in all regions except Latin America, which saw stability despite price hikes. Notably, average revenue per subscriber in North America spiked by 5%, underscoring Netflix’s pricing power in the streaming subscription realm.
Shifting Focus to Viewing Hours
A significant plot twist for Netflix is its decision to halt the reporting of subscriber numbers, starting in 2025. Management’s pivot underscores a shift towards prioritizing revenue, operating margin, and time spent on the platform as primary performance indicators. Rather than emphasizing subscriber gains, the company aims to boost hours watched as the new metric of success.
While some may lament the disappearance of subscriber data, investors will still glean insights from quarterly reports on revenue and operating margin trends.
Future Outlook for Netflix
The forthcoming change may ruffle feathers, but it heralds not doomsday. Investors should focus on Netflix’s strategies for sustaining revenue growth over the next five to ten years, as the company unveils novel initiatives.
Netflix is ramping up efforts to attract advertising-based subscribers and amplify advertising revenue. The growth trajectory in advertising suggests it could soon become a significant contributor to topline figures. Additionally, Netflix is delving into live events like boxing matches, NFL games on Christmas, and WWE content. The company is also venturing into mobile and video games to enhance user engagement.
Enhanced viewer engagement through diversified content offerings is poised to drive subscriber growth, increase platform usage time, and subsequently fuel revenue and profitability growth for Netflix.
Considerations for Investing in Netflix
Potential Netflix investors should reflect on the company’s strategic trajectory rather than short-term metrics. The innovative efforts and expansion plans signal a promising outlook for the streaming giant, despite the impending shift in reporting practices.
*Stock Advisor returns as of October 21, 2024