Earlier this year, Netflix reported a loss in subscriber counts for the first time in over a decade which immediately caused it stock price to plummet by 20%. Since then, it's been an uphill battle for the company as it looks to retain its subscribers, diversify its content offerings (games being a prime example) and introduce a cheaper, ad-supported tier. This is amidst the rare job cuts that took place in the middle of the year too. However, it looks like things are finally turning around for Netflix as it has reported a decent financial quarter with a good forecast in its latest earnings report.
In Q3 2022, Netflix managed to attract 2.4 million new subscribers, which is over double the forecast from Wall Street. Its revenue in this quarter was $7.9 billion, which is up by 6% compared to the previous year. The earnings per share are at $3.10.
Netflix emphasized that its competitors are losing around $10 billion per year collectively while Netflix alone is raking in an operating profit of $5-$6 billion:
Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard - we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix's $5 to $6 billion annual operating profit.
After a challenging first half, we believe we’re on a path to re-accelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us.
For the fourth quarter, Netflix expects to pick up 4.5 million new subscribers with a revenue of $7.8 billion, a slight decline that it's blaming on the strength of the U.S. dollar.
In terms of its upcoming ad-supported tier, Chief Product Officer Greg Peters assured investors that it will "lead to a significant incremental revenue and profit stream" in the long-term.
Netflix is making a significant change to its investor guidance though, saying that:
As discussed in previous letters, we are increasingly focused on revenue as our primary top line metric. This will become particularly important heading into 2023 as we develop new revenue streams like advertising and paid sharing, where membership is just one component of our revenue growth. So, starting with our Q4’22 letter in January of 2023, we’ll continue to provide guidance for revenue, operating income, operating margin, net income, EPS and fully diluted shares outstanding for the following quarter, but not paid membership. Similar to our regional membership disclosure, we’ll continue to report our global and regional membership each quarter as part of our earnings release.
Following the latest earnings report which highlighted a strong quarter and a favorable forecast, Netflix' stock price jumped by almost 15% in after-hours trading.
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