Netflix Reports Better-Than-Expected Q3 Earnings

Global streaming giant Netflix, Inc. (NFLX) reported stellar third-quarter earnings and revenue in line with expectations. Q3 results were driven by robust growth in paid memberships to 214 million viewers with net additions of 4.4 million viewers. Following the news, shares jumped as much as 2.8% in the extended trading session on October 19 but finished the session down 1.4%.

The company reported earnings of $3.19 per share, up 83.3% year-over-year, and significantly outpaced analyst estimates of $2.56 per share.

Further, quarterly revenue climbed 16% year-over-year to $7.48 billion, in line with consensus estimates. The APAC region contributed the most to paid memberships with 2.2 million net additions during the quarter followed by EMEA adding 1.8 million viewers and UCAN and LATAM showing slow growth.

Streaming content, including La Casa de Papel (aka Money Heist) and Sex Education, were the biggest returning shows with the highest member households, and Squid Game became Netflix’s biggest TV show ever. The company’s film slate was also full of popular movies such as Sweet Girl, Kissing Booth 3, and Vivo.

Additionally, in Q3, the company announced the acquisition of the Roald Dahl Story Company, including the intellectual property of famous titles like Charlie and the Chocolate Factory, Matilda, and Fantastic Mr. Fox. The acquisition is pending regulatory approval. (See Insiders’ Hot Stocks on TipRanks)

Netflix has also entered into the gaming space with its acquisition of Night School Studio. The acquisition will enable NFLX to build out its game development capabilities which it plans to include in member subscriptions.

Commenting on the performance, Netflix CFO Spencer Neumann said, “After a lighter-than-normal content slate in Q1 and Q2 due to COVID-related production delays in 2020, we are seeing the positive effects of a stronger slate in the second half of the year.”

“We compete with a staggeringly large set of activities for consumers’ time and attention like watching linear TV, reading a book, browsing
TikTok, or playing Fortnite, to name just a few…Our approach as always is to improve our service as quickly as we can so that we can earn a greater share of people’s time,” Neumann added.

Based on its performance to date and the assumption that no new COVID-19 related outbreaks affect the production of its shows, Netflix provided guidance for the fourth quarter.

For Q4, Netflix forecasts revenue and earnings of $7.71 billion and $0.80 per share, respectively, compared to consensus estimates of $7.68 billion and $1.10 per share, respectively. Moreover, the company sees global streaming paid net additions of 8.5 million, marginally higher than consensus forecasts of 8.33 million.  

In response to Netflix’s quarterly performance, Truist Financial analyst Matthew Thornton maintained a Buy rating on the stock with a price target of $690, implying 8% upside potential to current levels.  

Thornton noted that NFLX reported a strong quarter with “no big surprises,” provided expected guidance, and forecast operating margins of around 20% for FY21.

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 25 Buys, 5 Holds, and 3 Sells. The average Netflix price target of $651.84 implies 2% upside potential to current levels. Shares have gained 21.6% over the past year.

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