Key takeaways from Netflix’s third-quarter earnings as stock gains

Netflix stock (NASDAQ:NFLX) rose 4% in after-hours trading after the company easily topped expectations for profits and user growth in its third-quarter earnings report.

Margin growth ticking higher

Revenues grew 15% year-over-year, to $9.825B, and the company said it expected 15% growth for 2024 after similar expectations for the fourth quarter (that’s on the high end of a 14-15% range toward which the company had previously guided). Meanwhile, operating margin rose to 30% from a year-ago 22%, leading Netflix (NFLX) to bump its full-year expectations to 27% from 26%.

User growth still topping views

After some concerns in 2022 about membership growth topping out, the company has moved into a steady period of double-digit growth of users — and this quarter, it again topped expectations, adding 5.07M global paid net members (a 14.4% growth rate) to land at 282.72M global paid memberships. Engagement looks “healthy” as well, the company said, noting that for the first three quarters, view hours per member in owner households is up year-over-year.

Young ad business improving

The story from previous quarters about an ad-supported plan proving even more profitable than expected continues. “We’re now approaching the second anniversary of the launch of our advertising business and we’re making good progress,” Netflix (NFLX) said. “Our ads plan allows us to offer a lower price point for consumers, which is proving to be popular: In Q3, it accounted for over 50% of sign-ups in our ads countries and membership on our ads plan grew 35% quarter over quarter. We’re on track to reach what we believe to be critical ad subscriber scale for advertisers in all of our ads countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond.”

View hours per membership on the ads plan is “similar” to engagement on the standard plan across 12 ad-supported countries, the company added.

Monetization improvement

The company notes it’s still “working to improve our monetization by refining our plans and pricing,” adding some color to analyst discussions about potential price power in the coming years.

“Earlier this month, we increased prices in a few countries in EMEA plus Japan and starting tomorrow we’ll increase prices in Spain and Italy. We phased out the Basic plan in the US and France this past quarter and we’ll do the same in Brazil later in Q4,” Netflix (NFLX) said.

Free cash flow rose nearly 16% to $2.2B, which led Netflix (NFLX) to boost its full-year FCF estimate to $6.0B-$6.5B from a previous $6B.

Meanwhile, upbeat expectations for continuing user growth and engagement are resting on what is generally seen as a strong content pipeline.

“Netflix’s Q4 should be an impactful quarter with the release of Squid Game S2, the streaming of Jake Paul vs. Mike Tyson fight, and two Christmas Day NFL games,” Seeking Alpha analyst Michael Del Monte said in response to the report.

“Management is also focusing on growing user engagement in APAC with local content streaming,” he noted.

The company’s usual live Q&A interview with executives is set to begin at 4:45 p.m. ET.