Netflix beat several key earnings targets in its Q3 report on Wednesday (October 18) and announced it was increasing some tier costs as of today in the US, UK and France.
Revenue in Q3 increased by 7.8% year-on-year to reach $8.542bn in line with its forecasts and 7.8% up on the year-ago period, while global paid membership beat forecasts to climb by 8.76m from the last quarter to reach 247.15m in a 10.8% gain over the same period in 2022.
In the US the ad-supported plan at $6.99 and Standard plan at $15.49 will stay the same, while Basic will now be priced $11.99 and Premium $22.99.
For the UK and France the pricing for Ads, Basic, Standard, and Premium are £4.99, £7.99, £10.99, and £17.99, respectively in the UK and €5.99, €10.99, €13.49, and €19.99, respectively, in France. The ad-supported and Standard plans are unchanged.
Operating income reached $1.916bn, which was slightly ahead of its forecasts from Q2 and marked a 24.9% year-on-year gain over $1.533bn.
The company reported a 22.4% operating margin compared to 19.3% in Q 2022 and has forecast 20% for 2023, which is towards the high end of its previously forecast 18%-20% range.
Free cash flow climbed by approximately $1.4bn to $1.888bn and the company revised upwards its 2023 forecast from at least $5bn to approximately $6.5bn. Netflix’s primary financial metrics are revenue for growth and operating margin for profitability and its goal is to increase both and grow free cash flow.
Profits reached $1.677bn and diluted earnings per share beat expectations to reach $3.73 – both up on year-ago levels of $1.398bn and $3.10, respectively.
The company expects $8.7bn in revenue for Q4 with an approximately $200m “drag” due to the strengthening US dollar, and a net gain in global paid membership similar to Q3 plus or minus a few million. Global ARM (average revenue per member) is expected to remain flat year-on-year due to limited price increases over the past 18 months.
Ads plan membership increased by almost 70% quarter-over-quarter with 30% of sign-ups coming from the 12 countries where Netflix has launched its ads plan.
Less than a year since the launch of the ad tier, Netflix reiterated ad revenue would not to be material to the business in 2023 and added that it was “making good progress and laying the foundation for what we believe should be a multi-billion dollar revenue stream over time”.
The company has introduced higher quality video and a programme roster “that’s now essentially on par with our other plans”, on top of phasing out the Basic plan for new and rejoining members in the US, the UK, Italy and Canada, which it said has boosted adoption of the ads and Standard plans. It will make the same change in Germany, Spain, Japan, Mexico, Australia and Brazil next week.
Netflix is working with brands and recently launched title sponsorships with Frito Lay’s Smartfood presenting the new season of Love Is Blind. T-Mobile, Nespresso and others will all be presenting sponsors for The Netflix Cup, the company’s first live sports event streaming live on November 14.
Next year the streamer will launch an ad product for members whereby they can earn a “hero spot” which will make the next episode commercials-free, made possible by a particular brand.
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