Netflix stock jumped more than 14% after the firm reported better-than-expected top and bottom-line earnings. Revenue at the streaming video behemoth increased 6% yearly to $7.93 billion, above analysts’ estimates by $90 million. Its profits per share fell 3% to $3.10, yet it still beat the average estimate by $0.97.
Netflix’s stabilizing subscriber growth is encouraging, but revenue growth has slowed. It attributes the slowdown to the company’s growing reliance on international markets, which generate lower revenue per subscriber than the slower-growing US/Canada market, as well as the impact of the rising dollar on its overseas revenue. As a result, it expects fourth-quarter revenue to be up less than 1% year on year and down nearly 2% sequentially to $7.78 billion. However, in constant currency terms, this equates to a 9% year-over-year increase.
Increase in Subscriber Base Amidst Password Sharing Restriction
Netflix will start cracking down on password sharing next year, instead allowing those who have borrowed accounts to establish their own. People who share their accounts will also be able to establish sub-accounts to pay for friends and family to use theirs.
With a total of 1.43 million customers, the Asia-Pacific region was responsible for most of the net subscriber increase that Netflix saw during the quarter. The US-Canada area grew the slowest of all Netflix regions, generating just 100,000 net customers.
Engagement is Being Driven by the Growing Popularity of Shows
Netflix shocked investors in April when it reported its first sequential loss of subscribers in over a decade. It attributed the slowdown primarily to increased competition in the streaming industry, the effect of the Russia-Ukraine conflict, and people exchanging passwords. It claimed it would clamp down on shared passwords and launch a lower-cost ad-supported tier to entice new users, but those steps also indicated that it was running out of ways to get new members.
Netflix’s paid members increased again in the third quarter, thanks to popular programs like Monster: The Jeffrey Dahmer Story, The Gray Man, Extraordinary Attorney Woo, The Stranger Things and The Sandman. It forecasts its paid subscriber base to increase by 2% sequentially to 228 million in the fourth quarter.
|METRIC||Q3 2022||Q2 2022||Q1 2022||Q4 2021||Q3 2021|
|Paid Subscribers (Millions)||223.1||220.7||221.6||221.8||213.6|
Netflix accounted for 8.2% of watching in September and has more than double the monthly engagement of its nearest streaming competition. The bingeable release approach encourages significant participation, particularly for newer releases. This allows viewers to get immersed in their favourite tales. According to the Google Trends data, the option to see the whole Monster: The Jeffrey Dahmer Story aided in driving tremendous interest in the programme.
Good Cash Flow Performance And Debt Under Acceptable Limits
In the third quarter, net cash created by operational operations was $557 million, up from $82 million the previous year. FCF was $472 million in Q3 ’21, up from -$106 million the previous quarter. NFLX expects FCF of $1 billion or more for the full year 2022, plus or minus a few hundred million dollars, and significant growth in FCF in 2023. At the end of the quarter, the gross debt stood at $14 billion, well within the company’s target range of $10-$15 billion. Cash increased by $300 million year on year to $6.1 billion. After Q3’22, net debt was at $7.9 billion.
Margins are Still Contracting, And Valuations are Arguably High
Netflix’s operating margin of 19.3% in the third quarter was above its own expectation of 16%, but it still fell sequentially and year over year. It attributed most of its year-over-year drop to the strengthening of the US dollar, which is expected to continue as interest rates increase. It anticipates that this pressure and infrastructure expenditures connected to its new ad-supported tier would drop its operating margin to only 4.2% in the fourth quarter. It also anticipates a 73% drop in profits per share year over year.
|METRIC||Q3 2022||Q2 2022||Q1 2022||Q4 2021||Q3 2021|
|Free Cash Flow (Millions)||$472||$13||$802||($569)||($106)|
|EPS Growth (YOY)||(3%)||8%||(6%)||12%||83%|
Netflix could not offer an accurate fourth-quarter projection for its free cash flow (FCF), which varies greatly depending on new content development. However, it plans to earn around $1 billion in FCF for the whole year, implying that its FCF would likely turn negative again in the fourth quarter (after generating $1.3 billion in FCF in the first nine months).
Netflix’s profitability is expected to drop by 10%, even though analysts forecast a 7% increase in sales for the company this year. Assuming it continues to gain new members and increase its ad-supported tier, they estimate 8% and 6% growth in revenue and profitability, respectively, over the next year.
According to those forecasts, Netflix trades at a price 21 times predicted earnings, which is historically low but not even close to being a good deal compared to traditional media corporations. For instance, the market value of Disney shares is equivalent to 18 times future profits. Still, the market value of Paramount Global shares is equivalent to an even lower 11 times forward earnings.
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- Netflix Share Price Today (11/11/2022): 274.97 USD
- Netflix Share Price In Rupees (11/11/2022): 22,221.84 INR
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