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Netflix's shares surged in premarket trading following its strong third-quarter results, beating Wall Street estimates. The stock saw a remarkable 13.8% increase at 5:24 a.m. ET.
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The company exceeded expectations by adding 8.8 million net subscribers during the quarter, marking the most substantial quarterly growth since Q2 2020.
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Netflix is projecting a 20% operating margin for the full year 2023, aligning with the upper end of its prior guidance.
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In the third quarter, Netflix implemented stricter measures against password sharing, allowing an account to be used only within one household.
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A new subscription option was introduced, enabling users to pay less if they watch advertisements before and during content.
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The results, released after hours on Wednesday, surprised analysts with a forecast of similar subscriber growth for the next quarter, give or take "a few million."
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Third-quarter revenue reached $8.542 billion, reflecting a year-on-year growth of 7.8%, and net income rose to $1.677 billion from $1.398 billion in the previous year.
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Over the past year, Netflix shares have appreciated by nearly 30%, though growth concerns emerged as the streaming platform faced increasing competition in the streaming industry.
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Key metrics from Morningstar for Netflix include a fair value estimate of $350.00, a 3-star Morningstar rating, a narrow economic moat rating, and a very high uncertainty rating.
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Netflix's strong Q3 performance was characterized by a significant increase in subscriber additions and favorable underlying trends in margins and cash flow.
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Netflix is optimistic about a strong Q4 and has raised its fair value estimate to $350 from $330.
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While subscriber growth is expected to moderate, Netflix may see increased cash content spending in 2024 following the resolution of actors' strikes.
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Total revenue increased by 8% year over year due to robust subscriber growth, with 8.8 million net additions in the quarter.
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Netflix anticipates a rise in average revenue per member (ARM) in the coming years, partly driven by price increases in key markets and growing advertising revenue.
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The company's margin to hit 22%-23% by 2024. Costs may rise due to ad expansion and industry strikes. Sub growth could slow with paid sharing.