That’s thanks to a new strategy it implemented in the summer of 2023, which ended password sharing and forced more viewers to open accounts on the platform.
It also introduced a new, low-price ad-supported subscription membership catered to price-sensitive subscribers.
New shows such as “The Perfect Couple,” “Nobody Wants This,” and “Tokyo Swindlers” were introduced, along with the return of popular programming such as “Emily in Paris” and “Cobra,” as well as an expansion into documentaries and small programming.
These shows helped keep viewers “engaged,” a metric Netflix uses to measure member happiness with the platform. View hours rose for the first three quarters of 2024.
“Engagement on Netflix is healthy: around two hours a day per paid membership on average, despite the impact of paid sharing,” the company said in a letter to stockholders. “As we’ve discussed before, paid sharing led to lower viewing on shared accounts as fewer people watched them.”
Meanwhile, the broadening of Netflix’s offerings allowed the company to hike prices last year by $2 per month for its Basic plan and by $3 for its Premium plan, the second price hike since January 2022.
New memberships and price hikes boosted the streaming giant’s top and bottom lines. Revenues for the third quarter rose by 15 percent, to $9.78 million, beating analysts’ estimates.
Revenue growth was strong across all markets: The U.S. and Canadian markets saw an annual increase of 16 percent, while overseas markets grew at an annual rate of 16 percent. Revenue growth was robust in Asia-Pacific countries, up by 19 percent, thanks to adding local content.
The company also gave upbeat guidance for 2025, with fourth-quarter revenues reaching $10.13 billion for the year and $43 billion to 44 billion for the full year, an average increase of 12 percent over 2024.
An analysis of the streaming giant’s recent income statements shows that revenue growth has steadily risen, from 7.8 percent in the third quarter of 2023 to 15 percent in the most recent quarter, boosting the operating profit margin from 22.4 percent to 29.6 percent over the same period.
However, the most critical number for stockholders is within the company’s cash-flow statements, the free cash flow (FCF), which rose from $1.9 billion in the third quarter of 2023 to $2.2 billion in the third quarter of 2024. For the full year of 2024, Netflix expects FCF of $6 billion to $6.5 billion.
Free cash flow is the “milk” of Wall Street, according to some financial experts, because it is the source of funds that flow back to investors in the stock in the form of dividend payouts and share repurchases. During the third quarter, for instance, Netflix repurchased 2.6 million shares for $1.7 billion, and plans to spend another $3.1 billion under an existing authorization plan.
Netflix’s solid financial results and upbeat guidance were welcomed by Wall Street traders and investors, who sent the company’s shares 10.5 percent higher in early morning trade on Friday.
These gains fueled Thursday’s technology share rally, driven by a strong report by TSM, the leading Taiwanese semiconductor manufacturer.
Netflix’s stock gains on Friday’s trading session come on the heels of declines ahead of its earnings reports. Thus, they should be interpreted with caution. They may be driven by “short covering”—that is, the buying back of shares by traders who have betted against the stock ahead of earnings.
Still, Gimme Credit bond analyst Dave Novosel remains upbeat for the video-streaming giant.
“Netflix continued its torrid growth in the third quarter, posting a 15% percent increase in revenue on year-over-year subscriber growth of more than 14 percent,” he told The Epoch Times via email. “Average revenue per membership was flat. All its geographic segments recorded double-digit increases, except for Latin America. But more impressive was the expansion of operating margins by more than 700 basis points, reflecting its substantial operating leverage.”
Novosel sees Netflix benefiting greatly from its advertising plans. They accounted for more than 50 percent of sign-ups offered, soaring by 35 percent in the third quarter and boosting the company’s free cash flow, which could be used for share buybacks.
Meanwhile, he doesn’t expect Netflix’s explosive growth to recede, as management issued guidance for revenue to rise by 15 percent in the fourth quarter and by 11–13 percent in 2025.
“Operating margins are expected to improve five percentage points in the fourth quarter,” he said. “However, margins are projected to increase only 100 basis points next year as the company invests more in its business.”
