Even before the ad-supported subscription rollout, Netflix (NASDAQ:NFLX) stopped the subscriber bleed.
Following its better-than-expected Q3 2022 earnings report, Netflix (NFLX) got a +14% boost since Tuesday. New show hits seem to have broken the Netflix decline narrative, while a new subscription model and account sharing tweak is coming down the line.
Netflix (NFLX) Earnings Data Examined
The latest Q3 2022 financial report overshot expectations by a significant margin. Globally, Netflix has 223 million paid customers. Of that, 73 million are from the US and Canada (UCAN), generating $3.6 billion in revenue, or +11% year-over-year (YoY). Latin America holds 40 million Netflix subscribers, generating $1 billion in revenue, or a +12% YoY increase.
Combined with the slower-growing Europe, Middle East, Africa (EMEA at +2% YoY), and the Asia Pacific (APAC at +7% YoY), Netflix revenue increased to $7.93 billion (+6% YoY), surpassing the expected $7.837 billion. Likewise, adjusted earnings per share (EPS) exceeded estimates at $3.10 vs. $2.13.
This puts Netflix’s net profit for the quarter at $1.4 billion, at an 18% margin. The latter is a key profitability indicator, showing how much profit is generated on every $1 in sales. In other words, the higher the percentage margin, the more money the company keeps when all expenses are accounted for.
In this light, Netflix’s operating profit margin of 19% also exceeded 16% expectations. Overall, Netflix increased its subscriber count by +2.41 million, beating the +1 million forecast for the quarter. Most of the subscriber increase comes from the APAC region, at 1.43 million, while the UCAN subscriber boost is the lowest, at 100k new customers.
For Q4, the report estimates a +4.5 million subscriber increase, operating profit margin at +4%, and revenue at +1% YoY.
Netflix Turning Things Around with Hit Shows
In Q2 2022, Netflix lost nearly one million subscribers, for the first time in a decade, in addition to losing 200k subscribers in Q1. This was attributed to password sharing and rising living expenses. Nonetheless, since the subscriber loss was forecasted at 2 million, the damage to the stock price was not as it could’ve been.
For Q3, Netflix hits Stranger Things, Dahmer, Purple Hearts, Heartbreak High, Mo, and The Gray Man kept the accounts growing and the revenue flowing. Although Netflix can detect account sharing if there are multiple streams for the same IP address, the company has been using it as a growth vector.
Next year, this will change with the introduction of extra fees for sub-accounts. This feature has already been tested in Costa Rica, Chile, and Peru. For outside-household viewing, Netflix implemented the Profile Transfer feature to migrate all viewing history and recommendations.
Netflix “Basic with Ads”
On Nov. 3, Netflix will add “Basic with Ads” tier subscriptions, priced at $6.99 in the US. Presently, a basic tier for a single viewing device at a time is priced at $9.99, without ads. In addition to the US, ad-supported subscriptions will roll out in the UK, Canada, Australia, Mexico, Brazil, Germany, Italy, France, Spain, Japan, and South Korea.
Netflix partnered with Microsoft (NASDAQ:MSFT) to churn out commercials, which should last up to 30 seconds. According to Jeremi Gorman, Netflix’s president of worldwide advertising, all the ad space has already been sold out.
Interestingly, the new ad monetization model comes just before Disney Plus’s ad-based plan launch at $7.99 per month, starting in December. Given the massive subscriber numbers involved, “these launches are going to create the biggest premium advertising space in more than a generation,” according to Dallas Lawrence, Senior VP of Samba TV communications & brand analytics.