Netflix surprises the markets: skyrocketing sales, record profits and millions of new users

Netflix had a great start to trading on Friday, with shares opening more than 9% higher. That's because the company beat earnings per share (EPS) and revenue expectations for the third quarter of 2024 while also announcing a positive forecast for the fourth quarter.

The company had revenue of $9.83 billion in the quarter, beating analysts' estimates of $9.78 billion. This represents a 15% increase over the same period last year. Netflix attributes this growth primarily to its revenue-boosting initiatives - including stricter oversight of password sharing among users and offering ad-supported subscriptions - but also to price increases on select plans in the past year.

Strong year-end outlook

The company expects to reach $10.13 billion in revenue in the final quarter of this year, again exceeding analysts' estimates, who were expecting $10.01 billion. For the full year 2025, Netflix then estimates revenue between $43 billion and $44 billion, which would represent an 11% to 13% growth over its 2024 revenue expectations.

Operating margin, which reached nearly 30% in the third quarter, is expected to reach 27% in 2025, a slight increase from the earlier 26%. Earnings per share (EPS) were also higher than expectations, with Netflix reporting $5.40, while analysts were expecting $5.16. In the same period last year, the company achieved EPS of $3.73. For the final quarter of this year, it expects EPS of $4.23, again higher than the expected $3.90.

New subscribers are coming on board

Subscriber growth has also played a major role in the company's growth. In the third quarter, Netflix added 5.07 million new users, which was more than the expected 4.5 million. This growth followed a strong second quarter, when Netflix gained 8.05 million new paying users. Growth is expected to be even higher in the fourth quarter, thanks to popular content such as the second season of "Squid Games," a boxing match between Jake Paul and Mike Tyson, and two NFL games on Christmas Eve.

Interesting news is also the growth in interest in live sports and events that Netflix brings. This move is viewed positively by investors, especially in the context of increasing interest in ad-supported subscriptions. In countries where this option is available, it accounted for more than 50% of new registrations.

The advertising segment as a growth driver

In the advertising segment, Netflix continues to pursue its growth strategy. The number of ad-supported subscriptions grew by 35% quarter-on-quarter, and the company plans to roll out the advertising platform in Canada during the fourth quarter and in other countries in 2025. Netflix previously announced that its ad presales for 2024 were up more than 150% from 2023.

While ads are not yet a major source of revenue, Netflix co-CEO Greg Peters said the company sees great potential in this area. With audience growth and increasing ad space, ad revenue is expected to grow significantly in the coming years.

Possible price increases?

Shares of Netflix are up about 60% this year and are trading near all-time highs. However, analysts predict that the next step is likely to be an increase in subscription prices, which could boost the company's stock again. The last price increase was in 2022, when the standard plan was raised to $15.49 per month and the premium plan to $22.99. A possible price increase could come as early as 2025, when analysts expect prices could rise by as much as 12%.

Thus, Netflix continues to be a leader in the streaming industry, not only through innovation in content and technology, but also by continually seeking new opportunities for revenue growth.

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Source: Yahoo, Investing.com