Netflix stock rises after earnings and highest estimates for subscriber growth

Shares of Netflix (NFLX) opened more than 8% higher on Friday after the streaming giant beat third-quarter EPS and revenue estimates and forecast current-quarter revenue above Wall Street's expectations.

Revenue beat Bloomberg consensus estimates of $9.78 billion and reached $9.83 billion in the third quarter, Netflix reported after the market closed on Thursday, up 15% from the same period last year. The growth came as the streamer continued to leverage revenue initiatives like its crackdown on password sharing and ad-supported plans, as well as price increases on certain subscription plans last year.

Netflix forecast fourth-quarter revenue of $10.13 billion, above consensus estimates of $10.01 billion.

For full-year 2025, the company expects revenue between $43 billion and $44 billion, compared to consensus estimates of $43.4 billion. This would represent growth of 11% to 13% over the company's expected 2024 revenue guidance of $38.9 billion.

Full-year operating margin is expected to be 27%, up from the previous 26%, after the metric reached nearly 30% in the third quarter.

Diluted earnings per share (EPS) also beat estimates this quarter: the company reported earnings per share of $5.40, beating consensus expectations of $5.16 and well above EPS from $3.73 it reported in the same period last year. Netflix forecast fourth-quarter earnings per share of $4.23, beating consensus estimates of $3.90.

The number of subscribers also rose sharply: after groundbreaking programs such as “The Perfect Couple” and “Nobody Wants This”, over 5 million more were added.

The subscriber gain of 5.07 million beat expectations of 4.5 million and follows the 8.05 million net additions the streamer added in the second quarter. The company added 8.8 million paying users in the third quarter of 2023.

“We expect fourth quarter net paid adds to be higher than third quarter 2024 due to normal seasonality and strong content selection,” the company said, pointing to upcoming releases such as “Squid Game” Season 2, the battle between Jake Paul and Mike Tyson and two NFL games on Christmas Day.

Investors have praised the company's move into sports and live events. Meanwhile, the ad tier continues to grow in popularity, accounting for over 50% of sign-ups in the countries where it was offered in the third quarter.

“We continue to grow our advertising business and improve our offering to advertisers,” the company said in the earnings release. “Ads membership is up 35% quarter-over-quarter and our ad tech platform is on track to launch in Q4 in Canada and more broadly in 2025.”

The story continues

Last quarter, Netflix announced that it had secured “an increase in upfront advertising sales commitments of more than 150% throughout 2023.” The company previously stated that its goal is to make advertising “a more substantial source of revenue, contributing to sustainable, healthy revenue growth in 2025 and beyond.”

In the earnings call, Netflix co-CEO Greg Peters said that while ads won't be the primary revenue driver next year because “we're still growing that audience and inventory faster than we can monetize it,” the company said, ” Opportunity to close that gap.”

Ahead of the earnings release, Netflix shares have been on a tear, with the stock up about 45% year-to-date and trading near all-time highs.

Analysts expect the share price to rise further by the end of the year, which will likely serve as another catalyst for the stock. But the stock's recent rise has caused some concern on Wall Street.

Is there a price increase coming?

The company recently revealed as part of its latest semi-annual viewership report that subscribers watched over 94 billion hours on the platform from January to June, although engagement levels remained roughly flat year-over-year – a potential headwind when it comes to pricing power has become particularly important for streaming companies as consumers become increasingly choosy.

According to Deloitte's latest Digital Media Trends report, U.S. consumers on average subscribe to four streaming services and spend about $61 per month. Retaining loyal subscribers over the long term is challenging as consumers churn or cancel their subscription plans.

Netflix last increased the price of its Standard plan in January 2022, increasing the monthly cost from $13.99 to $15.49. At the same time, the price of the Premium tier was increased by $2 to $19.99 per month; The company increased the cost of this plan again last October to $22.99.

The company has not yet increased the price of its ad-supported offering, launched less than two years ago, which remains one of the cheapest advertising plans among all major streaming providers at $6.99 per month.

“Given Netflix's low cost per hour viewed, we see room for the company to increase U.S. prices by 12% in 2025,” Citi analyst Jason Bazinet said ahead of the report.

The company recently dropped its cheapest ad-free streaming plan, making the $15.49 Standard plan the cheapest deal for an ad-free experience.

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].

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