Netflix’s stock surged 11% during Friday’s trading session, reaching a new record high of over $760. This rise followed the company’s strong performance in the third quarter, where it exceeded earnings per share (EPS) and revenue estimates, and projected sales for the current quarter that outpaced Wall Street predictions.
The company reported Q3 revenue of $9.83 billion, surpassing Bloomberg’s consensus estimate of $9.78 billion and marking a 15% increase from the same quarter last year. This growth was attributed to measures like the crackdown on password sharing, the introduction of an ad-supported tier, and previous price hikes on certain subscription plans.
For the fourth quarter, Netflix anticipates revenue of $10.13 billion, above the consensus estimate of $10.01 billion. Looking ahead to full-year 2025, the company expects revenue to range between $43 billion and $44 billion, slightly below the consensus estimate of $43.4 billion, representing a growth of 11% to 13% from the expected 2024 revenue of $38.9 billion.
Operating margins for the full year are projected to reach 27%, up from the previous 26%. In terms of EPS, Netflix reported $5.40 for the quarter, exceeding predictions of $5.16, and significantly higher than the $3.73 EPS recorded in the same period last year. The company anticipates fourth quarter EPS of $4.23, ahead of the forecast of $3.90.
Subscriber growth remained robust, with an addition of over 5 million new subscribers, boosted by popular shows like “The Perfect Couple” and “Nobody Wants This.” The 5.07 million new subscribers surpassed expectations of 4.5 million, following an increase of 8.05 million in the previous quarter.
Netflix is optimistic about subscriber growth in the upcoming quarter, citing the expected release of high-profile content, including “Squid Game” Season 2, the Jake Paul vs. Mike Tyson fight, and two NFL games on Christmas Day.
Investors have responded favorably to Netflix’s expansion into sports and live events, while the ad-supported tier has gained traction, accounting for over 50% of new sign-ups in the regions where it is available.
The company has reported a 150% increase in upfront ad sales commitments compared to 2023, aiming to make ads a significant revenue source for sustained growth into 2025 and beyond. During the earnings call, Netflix’s co-CEO highlighted that while ads won’t drive substantial revenue immediately, there is potential for growth as the audience expands.
Leading up to these results, Netflix’s stock had experienced a notable rise, increasing around 45% since the beginning of the year and nearing all-time highs. Analysts anticipate a price increase by the end of the year, which could further boost share prices, although recent gains have raised concerns among investors.
Netflix’s users reportedly watched over 94 billion hours of content from January to June, although year-over-year engagement has remained steady, potentially posing challenges to pricing strategies. With U.S. consumers reportedly subscribing to an average of four streaming services, maintaining customer loyalty is crucial.
The last price increase for the Standard plan occurred in January 2022, raising the cost from $13.99 to $15.49. The Premium tier also saw a price increase during that time and was subsequently raised again last October. The ad-supported option has yet to see a price increase since its launch, remaining among the most affordable at $6.99 per month.
Analysts suggest the potential for Netflix to raise prices by 12% in 2025, given its effective cost per hour viewed. Recently, the company discontinued its lowest-priced ad-free plan, making the Standard plan its most affordable ad-free option.
With Netflix stock reaching all-time highs, investors are keenly watching for potential price hikes as catalysts for future share performance.