Netflix results: Everybody wants this
|Netflix had another stellar quarter in Q3. The company beat earnings estimates, reporting revenue of $9.82bn, better than the $9.77bn expected. Net income was stronger than expected, coming in at $2.42bn, better than estimates of $2.24bn. Earnings per share, a key measure of the profitability of a company, was $5.40, beating the $5.18 estimate. Overall, these are strong numbers for Netflix and solidify its position as the King of the streamers.
Disney, which is one of Netflix’s rivals, has a market capitalization around 60% of Netflix’s market cap, and it is far less profitable. However, it’s not just Netflix’s financials that are hard to beat. From a content perspective, Netflix’s latest report suggests that viewers are still hooked. It beat estimates for subscriber growth and added another 5 million subscriber’s last quarter. Added to this, the company said that its top 10 rated films all have over 10 million views. Combined with the excellent financial results, it is no wonder that Netflix’s share price is higher by nearly 5% in the afterhours market. The stock price has struggled since reaching a record high last week. But, after surpassing estimates for subscriber growth by more than 1 million, does Netflix’s stock price have further to go?
The good times may continue to roll into 2025
Netflix has a lot going for it. For example, the company managed to weather the Hollywood writers’ strike well and has posted decent results even though it said that its 2024 programming schedule was patchy in places. It also posted decent forward guidance for Q4. The company expects ‘paid net additions’ to grow at a faster rate in Q4 compared to Q3 because of seasonality and a strong content slate leading up to the festive season. Q4 revenue guidance has also beaten expectations, Netflix expects to generate revenues of $10.13bn, vs. expectations of $10.05bn. Revenues in 2025 are expected to be $43bn to $44bn, estimates were for $43.3bn. Operating margin is also expected to be slightly stronger than expected for 2025, at 28% vs. 27.9%.
Price rises in the pipeline
Netflix still sees a massive growth opportunity. It is targeting 500mn subscribers, it currently has 283 million. However, from 2025, the company will no longer report on subscriber numbers, and instead will focus on revenues, margins and free cash flow as its key metrics. These could be boosted by the monetization of the company’s subscriber growth. Its new ad tier and paid sharing model have been successful and have added a combined 60 million new subscribers. The next phase in its plan to boost revenue per user is to increase subscription prices. Netflix has recently raised prices in Japan and parts of Europe. On Friday it will also raise its subscription prices in Spain and Italy. Will the US be next? There is growing speculation that Netflix will announce a price rise for US customers at the start of next year.
We think that Netflix’s share price could attempt to get back to last week’s record high above $730. The strong retail sales data for September, combined with the positive growth outlook for the US, brightens the longer-term outlook for a consumer staple like Netflix. We think that the share price may continue to rally as long as the US economy continues to do well.
US exceptionalism powers S&P 500 to fresh records
Elsewhere, US retail sales were stronger than expected for September, and US blue chip stock indices are hovering near record highs. This is pushing up bond yields. The 2-year US Treasury yield is moving back towards the 4% level, at the same time as European yields fell on the back of a dovish ECB. US exceptionalism is back on show, and it is helping US stocks to power to record highs. However, now that rate cut expectations from the Fed have been scaled back and there is a 12% chance of no rate cut at the Fed’s November meeting, the focus is starting to shift to how frothy the US stock market is. This may gather pace, especially since the Vix index remains elevated at just under 20. However, on Friday it could be Netflix’s time to shine.
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