^{Source: Predictions based on analysts’ consensus from Visible Alpha}

Netflix (NFLX) Financial Results: Analysis

Shares of Netflix Inc. (NFLX), the world’s largest streaming platform by subscribers, jumped as high as 15% in after-market trading after the company far exceeded analyst predictions for profit in Q3 FY 2022 while also topping revenue estimates. The performance was driven by increasing global streaming paid memberships, which also beat estimates, and a slate of blockbuster shows and movies.

Netflix’s earnings per share (EPS) still declined by 2.8% year-over-year (YOY) to $3.10, nearly 98 cents higher than the consensus estimate of $2.12. Revenue increased by 5.9% YOY to $7.9 billion, slightly topping predictions.

Netflix’s better-than-expected results underscore its recent efforts to capture and maintain paid members amid a highly competitive streaming landscape. The company benefits from higher engagement than other streaming platforms as competitors are working primarily to build subscriber bases. Still, Netflix’s recent announcement to launch a lower-priced ad-supported plan, going back on years of promises to not include advertisements, suggests the company is concerned about member numbers going forward.

NFLX Global Paid Streaming Memberships

Netflix also beat analyst predictions in global paid streaming memberships, also referred to as global paid streaming subscribers, which climbed by 4.5% YOY to 223.1 million. This key metric indicates the number of global users that have signed up and paid for a subscription to receive streaming services. Streaming subscriptions are a critical component of Netflix’s revenue, and maintaining growth in this area is increasingly difficult with the entry of many competitors in the streaming space. Though this figure beat analyst estimates, it represents a slowdown in membership growth relative to the 9.4% YOY growth in paid memberships for Q3 FY 2021.

NFLX Guidance and Stock Performance

Netflix said that the rising U.S. dollar poses a significant headwind for its Q4 FY 2022 and is likely to contribute to $7.8 billion in revenue, a decline sequentially and and an increase YOY. It gave no guidance on EPS. The company also expects membership growth to slow relative to the prior quarter, with an expected 4.5 million paid net adds compared to 8.3 million for Q4 FY 2021. The company said it does not anticipate a material contribution from its advertising business in the upcoming quarter as it will launch midway through Q4 and will grow membership over time.

Netflix shares spiked by 15.1% as of 4:21 p.m. New York time. The stock has vastly underperformed the broader market over the last year, with a 1-year trailing total return of -62.3% against -17.1% for the S&P 500.

Netflix’s next earnings report (for Q4 FY 2022) is estimated to be released on Jan. 17, 2023.