Netflix Beats Estimates In Third Quarter, Reaching 214 Million Subscribers

A number of transgender employees and others are expected to stage a walkout on Wednesday over the company's actions related to the special, which they call transphobic and capable of causing harm. In memos to employees, he has maintained that there is no correlation between on-screen images and real-world violence. Co-CEO Ted Sarandos has backed Chappelle and cited freedom of expression in declining to take down the special as some critics have called for the company to do. There was no mention in the shareholder letter of an issue that has put the company on a somewhat unstable footing as it starts the final quarter of the year: Dave Chappelle's controversial comedy special, The Closer.
"After a lighter-than-normal content slate in Q1 and Q2 due to Covid-related production delays in 2020, we are seeing the positive effects of a stronger slate in the second half of the year," the company wrote in its quarterly letter to shareholders.
"It also matches how outside services measure TV viewing and gives proper credit to rewatching. "We think engagement as measured by hours viewed is a slightly better indicator of the overall success of our titles and member satisfaction," the letter said. In addition, we will start to release title metrics more regularly outside of our earnings report so our members and the industry can better measure success in the streaming
On the bottom line, the company demolished earnings per share estimates. After forecasting $2.55, and the Wall Street bar set at a similar level, the company posted $3.19. (The near-doubling from $1.74 in the year-ago quarter was due in part to a $136 million non-cash gain related to the revised valuation of Euro debt.) Revenue matched estimates for the period ending September 30, rising 16% year-over-year to $7.48 billion.
The letter did hit on a perennially hot topic, at least in industry circles: ratings. Later this year, Netfix said, it will shift from reporting the number of households viewing programming to the number of hours viewed.
Along with the third-quarter report, Netflix also predicted it will add 8.5 subscribers in the fourth quarter to top 222 million global customers.
The company has had some notable misses with guidance in some quarters over the past couple of years, but executives have chalked that up to the inevitable peaks and valleys of subscriber trends as time unfolds. Analysts had looked for about 3.8 million. The company has also pointed to an upswing in engagement numbers in an attempt to allay any concerns about a potential plateau in customers, characterizing them as more glued than ever to Netflix shows. Netflix had expected to add just 3.5 million subscribers in the third quarter, a decidedly more muted outlook than in previous third quarters.
That tally has since risen to a "mind-boggling" 142 million, the company announced. In the second quarter, Netflix signed up just 1.54 million new customers and had a relative lack of breakout titles comparable to Bridgerton or Tiger King from the year before. The third quarter, though, saw the release of Squid Game, which has become the most viewed original title in the company's history, with 111 million households catching it in its first month.
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Comparisons with 2020, when the company added tens of millions of subscribers amid Covid, have been difficult. Netflix stock climbed 1% today, closing at $639 per share, not far from an all-time high of $646.84 established earlier this month. It has risen more than 18% this year. The streaming leader has seen its fortunes improve in recent months after a choppy start to 2021.
Along with that global phenomenon, the company announced a push into video games during the quarter, which encouraged investors. Recognizing the need to develop new revenue streams, the company has recently partnered with Walmart on a line of consumer products and also acquired the catalog of children's author Roald Dahl, eyeing potential franchises.
In the shareholder letter, the company did not single out any media companies or emerging services, but acknowledged competition from "a staggeringly large set of activities for consumers’ time and attention." Beyond just streaming non-Netflix fare, alternatives include "watching linear TV, reading a book, browsing TikTok, or playing Fortnite, to name just a few," the letter said. When Facebook experienced a major outage on October 4, the company said by way of example, engagement on Netflix increased 14% during the time when the social media platform was down. Netflix faces ever more competition as time goes on, especially in the U.S., where at least five billion-dollar streaming rivals have lit up since 2019.
For the third straight quarter, Nidhi Gupta of Fidelity was slated to moderate the conversation. Conducted via video with five executives taking part in a pre-taped conversation guided by a single analyst, the sessions don't leave much room for any lengthy Q&A. The company's quarterly earnings interview, released about two hours after the financials, isn't apt to provide much, if any, additional insight. Investors are more focused on results than controversy, and the Chappelle dustup appears unlikely to slow subscriber momentum. The quarterly videos typically last about 40 minutes.
Netflix beat forecasts for subscriber growth — its own as well as Wall Street's — in the third quarter, adding 4.38 million to reach nearly 214 million worldwide.

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