Shares of Netflix (NASDAQ:) are trading sharply higher on Wednesday after the streaming giant reported better-than-expected across the board. Netflix reported Q3 EPS of $3.10, topping the consensus estimates of $2.13 per share, according to Refinitiv. Revenue came in at $7.93 billion, compared with analysts’ expectations of $7.83 billion.
The company said it added 2.41 million subscribers in the quarter, smashing the consensus projection of 1.09 million, as per StreetAccount. A total of 1.43 million of the new subscribers came from Asia-Pacific, Netflix said, making it the fastest-growing region in the third quarter.
The U.S.-Canada area recorded the slowest growth, adding just 100,000 net subscribers. Previously, the U.S. alone represented nearly 50% of all Netflix subscribers, but the company’s global expansion efforts are under way.
Netflix’s stock was down about 60% year-to-date prior to the Q3 earnings release.
It’s All About Sustaining Growth
Some analysts were concerned that the streaming company will struggle to sustain the above-average growth that helped Netflix stock to increase nearly 800% from 2016 to 2021. For this reason, many long-term Netflix investors will be relieved as strong Q3 performance came after a disappointing second quarter, when Netflix lost nearly 1 million subscribers.
“We’re still not growing as fast as we’d like,” said Netflix’s CFO Spencer Neumann. “We are building momentum. We are pleased with our progress. But we know we still have a lot more work to do.”
“Netflix’s impressive numbers show the company’s growth story is far from over,” said Investing.com analyst Haris Anwar.
The company expects its competitors to end 2022 with a total operating loss of more than $10 billion, compared with its own annual operating profit forecast of $5 billion to $6 billion. The California-based streamer expects to add 4.5 million subscribers in the December quarter and revenue of $7.8 billion, mainly because of currency headwinds abroad. The subscriber growth forecast beat analysts’ estimates of 4.2 million.
While Netflix keeps looking for new revenue streams, the company said it doesn’t plan to change its original programming and will continue allowing customers to binge-watch all episodes at once. Also, Netflix said it will no longer offer quarterly guidance for new subscribers, though it will continue providing estimates for revenue, operating income and other categories.
During the latest quarter, the streaming company reaped the rewards of season four of its popular science fiction TV series “Stranger Things.” More recently, Netflix released the serial-killer show “Dahmer – Monster: The Jeffrey Dahmer Story,” which turned into one of its most-watched TV series ever.
Netflix will try to use the momentum and continue facilitating its membership growth after a weak first half of the year. The company’s weak subscriber growth in H1 2022 came due to headwinds in the global economy and growing competition in the streaming market.
The emergence of new streaming services in the U.S., including Paramount+ and Disney+ have been expanding their market share in the recent period. However, Netflix said in its quarterly letter to shareholders that some rivals are losing money from streaming.
“Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard,” the letter said.
New Ad-Tier Helping Netflix Shares To Re-Rate Higher
Netflix shares have been on the rise in recent days after the company announced last week it will add a new lower-priced ad-supported plan, which is set to launch in 12 countries in November. The new tier will become available in the U.S. on Nov. 3 and will be priced at $6.99 per month.
The more affordable subscription plan, dubbed “Basic with ads,” will include 4-5 minutes of ads each hour. Users who opt for this tier will not be able to download films and TV shows and will have access to a limited number of titles to watch.
Commercials will last around 15 to 30 seconds each and will be displayed before and during a movie or a TV show. Netflix will allow companies to prevent their commercials from appearing on the content they consider unsuitable and will help them gain insights into the ads’ reach with the help of ratings company Nielsen.
The new ad-supported plan comes after weak subscriber growth in the previous quarter, even though Netflix remains the biggest streaming platform with more than 221 million subscribers.
The company said it feels “very optimistic” about the new tier and even though it does not expect the ad-supported plan to have a significant impact on Q4 results, it believes it will help the company grow the number of subscribers gradually.
Netflix shares traded higher on Wednesday after the company delivered a very strong Q3 earnings beat. Investors are likely to see the Q3 report as a corner turned for Netflix after the company lost nearly 1 million subscribers in the second quarter.