Netflix shares popped over 5% in after-hours trading on Thursday as the streamer beat Wall Street expectations for its third quarter of 2024, with its profits surging 41% year over year to $2.36 billion and revenue up 15% to $9.83 billion as subscriber additions and its ad business continued to grow.
The company boasted the success of titles like “Nobody Wants This,” “The Perfect Couple” and “Rebel Ridge” and touted “healthy” engagement, with around two hours a day per paid member on average, despite the impact of paid sharing.
“We’ve delivered on our plan to reaccelerate our business, and we’re excited to finish the year strong with a great Q4 slate, including ‘Squid Game’ Season 2, the Jake Paul/Mike Tyson fight and two NFL games on Christmas Day,” the company wrote in its quarterly shareholder letter on Thursday. “As we look ahead to 2025, we’re focused on improving every aspect of our service and continuing to deliver healthy revenue and profit growth.”
Here are the top-line results:
Net income: $2.36 billion, up 41% year over year, compared to $1.68 billion a year ago.
Earnings per share: $5.40 per share, up 45% year over year, compared to $5.09 per share expected by analysts surveyed by Zacks Investment Research.
Revenue: $9.83 billion, up 15% year over year, compared to $9.77 billion expected by analysts surveyed by Zacks Investment Research.
Subscribers: Netflix added 5.07 million subscribers in the quarter, up 14.4% to 282.72 million globally.
Netflix’s operating income grew 52% year over year to $2.9 billion, while its operating margin increased seven percentage points to 29.6%. The company generated $2.19 billion in free cash flow during the quarter and had $2.32 billion in net cash from operating activities.
Netflix subscriber and revenue growth continues despite drag in Latin America
Netflix added 690,000 paid subscribers in the U.S. and Canada during the quarter for a total of 84.8 million. The streamer added 2.17 million in the Europe, Middle East and Africa region for a total of 96.13 million and 2.28 million in the Asia-Pacific region for a total of 52.6 million.
But Latin America was a weak spot, with the company shedding 70,000 subscribers for a total of 49.18 million due to recent price changes and a softer content slate. However, membership growth in the region has started to rebound during the fourth quarter of 2024, the company said.
Revenue for the quarter grew 16% year over year to $4.32 million in the U.S. and Canada, driven by 10% growth in average paid memberships and 5% growth in average revenue-per-paid member (ARM) to $17.06. The EMEA region grew revenue 16% year over year to $3.13 billion, consistent with the increase in average paid memberships, while ARM for the area was flat at $10.99 per user. The APAC region saw revenue growth of 19% year over year to $1.13 billion on improvements in product and market fit and strong local content slates in Japan, Korea, Thailand and India, though ARM fell 4% to $7.31 per user. LATAM revenue rose 9% year over year to $1.24 billion and ARM fell 5% to $8.40.
As it shifts its focus to revenue, operating margins and engagement, Netflix will stop reporting its quarterly subscriber count and average revenue-per-paid member figures beginning in the first quarter of 2025. It will continue to provide a breakout of total revenue by region, as well as the impact of foreign exchange changes and announce major subscriber milestones as it crosses them.
Looking ahead at the fourth quarter, Netflix expects revenue growth of 14.7% to $10.13 billion, $2.19 billion in operating income, an operating margin of 21.6%, net income of $1.85 billion and diluted earnings per share of $4.23. It also expects higher paid net additions due to normal seasonality and a strong content slate.
For full year 2024, it expects revenue growth of 15% and an operating margin of 27%. As for 2025, the company is forecasting revenue of $43 billion to $44 billion, or growth of 11% to 13% and an operating margin of 28%.
“We expect revenue growth to be driven by a healthy increase in paid memberships and ARM,” the company added. “After delivering outsized margin improvement in 2024, we want to balance near term margin growth with investing appropriately in our business. We still see plenty of room to increase our margins over the long term.”
Ads business on track for ‘critical’ subscriber scale in 2025
Netflix said it continues to make “good progress” scaling its ads business as it approaches the second anniversary of the offering’s launch. During the third quarter, the ad tier accounted for over 50% of sign-ups in the 12 countries where it’s available, with membership growing 35% quarter over quarter.
Ad plan members are watching a similar amount of viewing hours and titles compared to non-ad plan members, co-CEO Greg Peters said. He also noted that cost per thousand impressions (CPMs) are healthy and “at the high end of that premium CTV ad market.”
“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,” Netflix said. “We’re also pleased with the engagement on our ads plan with view hours per membership similar to engagement on our standard plan in our 12 ads countries.
However, we have much more work to do improving our offering for advertisers, which will be a priority over the next few years.”
During its latest upfront negotiations, the company saw a more than 150% year over year increase in ad sales commitments – in-line with expectations. But the company reiterated that its ad business remains in the early stages and that it doesn’t expect it to be a primary driver of revenue growth in 2025. It anticipates that ads revenue will roughly double year over year in 2025.
“The near term challenge (and medium term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory,” Netflix added. “While this creates a short term drag on ARM, we are balancing building ads scale (for more meaningful ads revenue and ARM contribution over time) while still delivering healthy overall revenue growth in the near term.”
Netflix is on track to launch its in-house ad-tech platform in Canada during the fourth quarter and more broadly in 2025 in the rest of its ad countries. It has also expanded programmatic capabilities with The Trade Desk and Google Display & Video 360.
Netflix knocks bundles, addresses competition with YouTube
Netflix, which accounted for 7.9% of streaming viewership in September, said it plans to continue to grow its share by investing in its TV series, films, games and “continuing to improve the variety and quality of our offering,” rather than bundling itself with other streaming services.
“We’re seeing a lot of our competitors use bundles to find growth in their businesses, and I get that it’s a comfortable business model for legacy media companies. And given the narrow scope of the libraries on these services and the fairly limited engagement, it makes sense for them to kind of replicate some of the older media models of kind of creating these bundles,” Netflix co-CEO Ted Sarandos said. “But what we’re focused on is adding more and more value to amazing series and films and now games at a remarkably low price, all in one place.”
When asked about YouTube, Sarandos said the two companies have “very different strengths” and are complementary to each other.
“We think that Netflix is the best place for premium stories because we’re the home to the best storytellers,” Sarandos said. “We have an enormous reach, 600 million watchers. We assume the financial risk when you’re making your content. Our subscription model generates higher returns for creators. Those higher returns let them make more ambitious investments in their next projects.”
Co-CEO Greg Peters added that Netflix fills an “important and different role” for both consumers and creators, adding that its “hard to imagine” how big creative bets like “Squid Game” and Outer Banks” would be possible with YouTube’s business model.
“We are really focused on the 80% of watching that happens, not on YouTube or Netflix yet,” Sarandos reiterated. “So we still got plenty of work to do.”
Will Netflix raise prices in the U.S.?
Netflix increased prices in a few EMEA countries and Japan earlier this month, and will raise prices in Spain and Italy starting Friday. It also phased out its basic plan in the U.S. and France during the quarter and will do the same in Brazil in Q4.
But investors have questioned if a price increase could soon be coming to the service’s plans in the U.S.
“Our core theory is we got to work really, really hard to make sure that we are delivering more value to members every quarter, and then we sort of assess based on metrics like engagement, like acquisition, retention,” Peters told analysts on Thursday. “We’ll continue to evaluate that. We’ll look at those signals, and we’ll figure out where and when we think it’s appropriate ask those members to pay a little bit more as well.”
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