There was a lot to like about Netflix’s (NASDAQ: NFLX) third-quarter earnings report. The content production house posted stronger-than-expected subscriber growth for Q3 while projecting further gains for the current quarter.
How did Netflix do in Q3?
The crucial number when it comes to Netflix’s earnings is subscribers, and boy did it deliver.
During the quarter, it added 4.4 million new subscribers which boosted its global total to a whopping 213.6 million. This growth beat smashed its own, and Wall Street’s, forecasts of 3.5 million.
And it doesn’t see this slowing down.
The fourth quarter is the holiday season, a time when lots of people avoid the cold weather and wind down in front of their televisions. During this period, Netflix said it expects to add another 8.5 million new paid users, slightly ahead of Wall Street’s estimates of 8.4 million.
In the shareholder’s letter, Netflix happily stated:
“We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially.”
Netflix said its subscriber growth was driven by 2.2 million net adds in the Asia Pacific region, and 1.8 million in Europe, the Middle East, and Africa. Hit show ‘Squid Game’ was a really big help in boosting these numbers. With ‘Squid Game’ allegedly only costing it around $20 million to make, shareholders are considering the value of Netflix creating content in cheaper, foreign markets.
On the financial side, the streaming platform recorded sales of $7.48 billion, up 16% year-over-year which came in line with the company’s guidance. Profits soared to $3.18 per share, smashing analyst estimates of $2.56 a share. In the next quarter, it also guided for revenue of $7.7 billion, up 16.1% YoY, for Q4 too.
However, shares in the streaming service are down almost 2% since it released its earnings.
So, why is Netflix stock down?
There are a few reasons some investors are selling Netflix stock.
On the call, the company said free cash flow was negative $106 million and Netflix said it expects operating margin to shrink to 6.5% as it plans to spend heavily on new content.
The stock is also trading around 10 times its revenue. While it only posted 16% YoY revenue growth, shares are looking pretty expensive which is also another concern.
In addition, there was a lot of hype around the company’s series ‘Squid Game’ but some investors are not content that it brought in enough U.S. subscribers. While it attracted 4.4 million new subscribers in the quarter, only 70,000 came from the U.S. and Canada.
Shareholders need to look at the big picture though as the above concerns are short-term.
Is Netflix a buy after its earnings beat?
Netflix is the leading streaming service provider in the world, a product that is likely to remain popular for the foreseeable future. In addition, the California-based company expects to be cash flow breakeven for the full year and reach positive cash flow in 2022. For long-term investors, the future looks bright.
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Financial Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.