"Netflix, Growing Expectations for Growth through Enhanced Content Competitiveness"

[Asia Economy Reporter Minji Lee] Netflix recorded strong performance in the third quarter with an increase in paid subscribers, and there are expectations that strengthening content competitiveness will drive further earnings growth.

According to the financial investment industry on the 24th, Netflix's stock price reached $664.78, up 12.22% over the past month as of the 22nd. This is interpreted as reflecting expectations for strong performance due to enhanced content competitiveness.

Netflix's third-quarter revenue and operating profit rose 16.3% and 33.5% year-over-year, reaching $7.48 billion. The third-quarter operating margin improved by 3.5% compared to guidance, reaching 23.5%. Marketing expenses decreased relatively, and the significant factor was a net increase of 4.38 million paid subscribers compared to the previous quarter.

By region, 49.7% (2.18 million) of the total net increase in subscribers occurred in the Asia-Pacific region, exceeding the guidance of 880,000. Suyeon Shin, a researcher at Shin Young Securities, said, "Thanks to strong content competitiveness including 'Squid Game' in the third quarter," adding, "The success of Squid Game helped rebuild the image that 'there is a high chance of seeing good content on Netflix,' which likely strengthened competitiveness in the global OTT (online video service) market." However, new subscribers in North America were 73,000, falling below 100,000 net additions for the first time in a quarter.

The company provided an annual operating margin guidance of at least 20% and a fourth-quarter guidance of around 6.5%. This is because profitability is expected to decline due to the release of multiple contents in the fourth quarter. Nevertheless, through the third-quarter results, the company reaffirmed that securing paid subscribers through strengthened content competitiveness remains effective, and assuming a normalized production environment is maintained, it plans to produce more original works in 2022 than before.

Recently, Netflix has been strengthening its content competitiveness, acquiring the 'Roald Dahl Story Company' last month. It is expected to lead subscriber growth by adapting numerous mega IPs of Roald Dahl into various video formats. The company is producing Netflix original content based on the world of 'Charlie and the Chocolate Factory,' and is also adapting the musical 'Matilda.' In the gaming business, Netflix acquired Night School Studio, a game development and publishing company famous for 'Oxenfree,' and is opening the service without in-app ads or payments to provide immersive experiences to the majority of paid subscribers accessing via mobile devices.

Hyunji Lee, a researcher at Eugene Investment & Securities, said, "Games using original content are being piloted in some regions, which is positive in terms of expanding revenue models using IP," adding, "The impact of Korean content proven by Squid Game is leading to increased investment in Korean content, so an increase in distribution share is also expected, keeping interest in domestic production companies valid."