The streaming company topped estimates for earnings per share and subscriber growth in the third quarter, but warned that the final three months of the year could be more subdued.
In reaction to the earnings data, Netflix’s share price increased by 5% in after-market trading on Tuesday 19 October.
The numbers
The company achieved revenue of $7.5bn in the three-month period, bang in line with expectations. Meanwhile, earnings per share (EPS) of $3.19 was ahead of projections, soundly beating consensus estimates of $2.56.
Netflix’s subscriber growth beat expectations during the period, with 4.4 million new members signing up to the service. This was ahead of the company’s projection of a 3.5 million increase.
Growth here was driven by the Europe, Middle East and Africa and Asia-Pacific regions. These geographies respectively yielded 1.8 million and in 2.2 million additional subscribers. The company has low penetration in the Asia-Pacific region compared to North and Latin America, where growth was more subdued. This could stifle future growth for the service, but it argued there was still room for further growth in the regions.
Looking to the fourth quarter, Netflix said it expected revenue to come in at $7.7bn, a year-on-year increase of 16.1%. However, the company also projected EPS of $0.80. This would be well below the third quarter and 32.8% behind the same period in 2020.
Content
The third quarter boost in subscribers came amid the popularity of Squid Game, which has become something of a global phenomenon. The South Korean drama is the streaming service’s biggest TV show ever, with 142 million member households watching the title in its first four weeks.
Other hits during the third quarter period included a fifth season of Money Heist, a third season of Sex Education and the action film Sweet Girl.
Looking ahead, Netflix expressed optimism about its fourth quarter content, noting the return of popular English language series such as The Witcher, You, Tiger King and Cobra Kai. It also explained that, assuming there are no new COVID waves, it will release more original content in 2022 than was put out this year.
Netflix co-CEO Reed Hastings commented that the company had never gone into the fourth quarter with so much new content, stating that the streaming service was in “uncharted territory”. As such, the company said it expected to net a further 8.5 million subscribers in the period.
Additionally, the company has reached an agreement to acquire The Roald Dahl Story Company. If approved this would give Netflix the rights to develop adaptations of the Danish author’s popular stories, including Charlie and the Chocolate Factory, Matilda, The BFG and James and the Giant Peach.
As well as its original TV and film content, Netflix is also looking to expand into gaming. This is something we have been hearing about for some time now. However, the company took a big step in the third quarter period, acquiring acclaimed game developer Night School Studio. This acquisition comes as Netflix has begun testing its gaming offering in selected countries. However, its expansion into this new arena remains at an early stage.
Is Netflix a good investment?
The company continues to confidently expand its roster of original content. Netflix’s own made shows and movies are such a powerful driver for acquiring new subscribers because, unlike third party content, they cannot be seen anywhere else. Not new release can be a phenomenon like Squid Game, but the company is building a strong batch of series that will keep viewers coming back for more.
A new COVID-19 wave could scupper this though, forcing the company to push back its production schedule once more.
The step into gaming is also intriguing. The fact that Netflix does not intend to charge extra for this content seems like a positive. Microsoft’s Xbox Game Pass and Epic Games’ Fortnite have already shown that free or subscription-based gaming services can be strong business models. However, Netflix will have its work cut out in elbowing into this competitive market.
This might also distract the company from its ongoing jostling with competitors, such as YouTube, Amazon’s Prime service, Disney+ and Apple TV+. Netflix and Youtube are currently in the dominant position here, but their competitors have the financial firepower to make a real push for the top spot.
