Netflix Beats Earnings Expectations in Q3 as Advertising Tier Shows Strong Growth

Netflix (NASDAQ:NFLX) released a strong Q3 2024 report on Thursday, exceeding expectations with $9.8 billion in revenue and $5.40 earnings per share. The company’s ad-supported tier saw a 35% increase in memberships, driving more than half of new sign-ups in available markets. Subscriber growth also impressed, adding 5.1 million new users, bringing the total to 282.7 million.

The Q3 results represent a 15% increase in revenue compared to the same period last year. For Q4, the company projects much the same, with revenue expected to hit $10.1 billion, which will represent a similar growth rate. The company posted a strong operating margin of just under 30% this quarter, and it’s the bottom line which Netflix plans to continue to focus on next year.

Focus more on profitability and margin expansion rather than subscribers

This year, Netflix is anticipating its total revenue will come in at $38.9 billion. Next year, it projects the top line to total at least 43 billion, representing a growth rate of around 11%. While the business is slowing down a bit, Netflix is working on strengthening its margins, as the company notes it sees plenty of opportunity to do so, perhaps implying that some price hikes may be in the cards.

One big change for next year will be that Netflix will no longer provide updates on subscriber numbers as its focus is more on revenue and profitability rather than sheer subscriber growth. Ultimately, it’s the top and bottom lines which should be of most importance to investors, anyway. Focusing on subscriber growth can incentivize the company to offer discounts rather than focusing what matters most — profits.

Netflix has been a star performer in 2024

Heading into the release of earnings, shares of Netflix were up more than 41%. And in after-hours trading, investors appeared pleased with the results with the stock up around 5%. Netflix has a market cap of around $300 billion today and investors are paying a bit of a premium for it as it trades at a price-to-earnings multiple of 43. But given the strong results, the stock could get back up to its 52-week high of $736 in the not-too-distant future.