Netflix added 8.8m new subscribers in the third quarter, which was better than expected. This contributed to total revenue rising 8% and in-line with expectations of around $8.5bn. Average Revenue Per Membership (ARM) fell 1% reflecting a higher proportion membership growth from lower ARM regions.
The group's cheaper ad-supported tier saw membership grow almost 70% compared to last quarter.
Netflix highlighted that negotiations with the writers and actors union, SAG-AFTRA remain ongoing.
Operating profit rose 25% to $1.9bn. The group spent $2.9bn on content in the quarter and generated free cash flow of $1.9bn. Net debt was $6.5bn as at the end of the period.
Higher-than-expected membership growth means operating margins are expected to be 20% for the full year, at the higher end of the guidance range.
Shares rose 12.8% in after-hours trading.
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Our view
Cracking down on account sharing has boosted Netflix's revenue and profits in a big way. A huge amount of people have chosen to become legitimate customers, giving Netflix the opportunity to spread its costs over a larger customer base.
Netflix's ability to reduce churn (customers flipflopping to rivals) is firmly rooted in its best-in-class original content. Audiences engage more with original content, and while it's expensive to make, it does keep eyeballs on screens in a bigger way. That's partly why Netflix spends about $17bn a year on content. The content budget's likely to swell because of the disruption to production from writers and actors unions which has caused filming to stall. That's not the end of the world, but will need monitoring as things begin to get back to normal.
And keeping eyes glued to the Netflix app is front of mind in the inflationary environment, which is why the ad-supported tier was born. Initial progress seems positive, but we are realms away from knowing for sure if this venture is the cash cow it's been sold as. Netflix needs to squeeze as much juice as it can from different avenues, given a recent lack of price increases could suggest that inflation is starting to bite Netflix's ability to crank up its subscription price, as households look to trim their spending.
The group also has a market-leading international production and distribution network. Doing localised content right isn't easy and Netflix has an enviable footprint here. This is important because longer-term subscriber growth will need to come from emerging markets.
Looking nearer-term, Netflix faces challenges of the economic variety in its core markets like the US and UK. As people dial down spending in the wake of inflation, the risk from fever-pitch competition has increased. While cheaper plan options will help mitigate this, Netflix can't take its foot off the gas - there are plenty of rivals waiting in the wings to pounce on market share.
The balance sheet, although carrying a fair whack of debt, isn't in bad health. That said, investors shouldn't be holding their breath for shareholder returns any time soon. The priority now is investing in the business and content for growth.
Netflix is a market leader, and there are plenty of moving parts these days which could add up to longer-term growth. We also note the valuation isn't as unreasonable as it has been. In the short-term, the group's valuation is likely to fluctuate with the wider market mood music, which will depend on the performance of major western economies.
Netflix key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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