Q3 Earnings Announcement
Sales, Net Profit, and Subscribers All Exceed Market Expectations
[Asia Economy Reporter Yujin Cho] The U.S. online video service (OTT) Netflix posted surprisingly strong third-quarter results. As the COVID-19-driven boom ended amid intensified competition from latecomers, Netflix, which had experienced its worst slump since its founding, is now considered to have hit bottom. The market cheered the strong performance, with revenue, net profit, and new subscriber numbers all exceeding market expectations.
On the 18th (local time), Netflix announced its third-quarter earnings, reporting revenue of $7.926 billion, up 5.9% year-over-year, and operating profit of $1.533 billion, down 12.64%. Net profit was $1.398 billion, roughly on par with $1.449 billion in the same period last year. Earnings per share stood at $3.10.
Both revenue and earnings per share surpassed Wall Street expectations. The company explained that third-quarter revenue growth was driven by an increase in new subscribers, and excluding the impact of the strong dollar, the year-over-year revenue growth rate reached 13%.
The declining trend in new subscribers (paid members) also reversed. Third-quarter new subscribers totaled 2.41 million, more than double the forecast of 1.07 million compiled by financial data firm Refinitiv.
Bloomberg reported that original content such as "Stranger Things Season 4" and "The Gray Man" attracted millions of new subscribers.
Netflix expects the total number of new subscribers for the year to reach 4.5 million, exceeding market expectations of 4.2 million.
With the assessment that "the worst phase is over," expectations for fourth-quarter results are also rising. The U.S. business magazine Fortune reported, "Netflix is growing again, and Hollywood is breathing a sigh of relief."
In the fourth quarter, releases of "The Crown" and the sequel to "Knives Out" are scheduled, along with the launch of a new advertising business, the "ad-supported subscription plan." Netflix expects that while the ad-supported plan will not immediately impact fourth-quarter results, it will gradually contribute to subscriber growth.
Spencer Neumann, Netflix's Chief Financial Officer (CFO), said, "We are still not growing as fast as we want," adding, "There is still more work to be done."
However, due to the strong dollar's currency impact, fourth-quarter revenue is expected to decline to $7.8 billion compared to the same period last year.
In a shareholder letter, Netflix emphasized, "We are trying various changes to accelerate growth," highlighting efforts to strengthen competitiveness by producing original content and releasing episodes all at once to increase story immersion.
It also stressed that "although competing OTT companies are making massive investments to attract new members, building a successful business is not easy," underscoring Netflix's comparative advantage as the market leader in the increasingly competitive OTT market.
Netflix is expected to post operating profits of $5 billion to $6 billion for the year, while competitors are estimated to record operating losses exceeding $10 billion.
Following the better-than-expected strong performance, Netflix's stock price surged nearly 15% in after-hours trading. The stock had fallen nearly 60% this year alone, reflecting the worst performance since the company's founding.
As market expectations rise for the ad-supported subscription plan launching early next month in Korea and 11 other countries worldwide, news of subscriber growth breaking the declining trend has boosted investor sentiment, according to foreign media.
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