Netflix 23Q3 Earnings Review: Profits Expected to Accelerate Release

Netflix (NFLX.O) released its Q3 2023 earnings report on October 18th, exceeding market expectations by a significant margin.

Q3 2023 revenue was $8.542 billion, up 7.8% YoY, slightly exceeding company guidance and market expectations, with revenue growth accelerating. The increase in revenue this quarter was primarily driven by growth in paid subscribers, offset by a slight decline in Average Revenue per Membership (ARM).

The Q3 2023 operating profit margin was 22.44%, slightly higher than the previous quarter due to reduced content costs resulting from strikes and cost savings. The company expects a full-year operating profit margin of 20% in 2023 and a range of 22%-23% in 2024, indicating a healthy expansion of profitability.

The total number of Netflix subscribers in Q3 2023 was 247 million, with 8.76 million new subscribers added, benefiting from the crackdown on shared accounts and low-priced advertising packages. The EMEA region had the most new users at 39.5 million, followed by APAC, UCAN, and LATAM regions, with new users of 1.88 million, 1.75 million, and 1.18 million, respectively.

In Q3 2023, the ARM was $10.85, down 1% YoY and 6.5% QoQ. The decline was mainly due to the lack of price increases and most new subscribers coming from regions with lower subscription prices and an increase in low-priced advertising package users. While ARM will continue to face pressure in Q4, pricing strategies, increased advertising revenue, and additional member fees should help drive ARM growth in the long run.

The company announced higher pricing for premium plans in the US, UK, and France, with no change to ads and standard plan pricing. Premium plan pricing will increase by approximately 20%, 14.3%, and 10%, respectively. Maintaining ad and standard pricing levels will help maintain competitiveness among price-sensitive users while increasing the attractiveness of advertising packages, further accelerating advertising monetization. Moreover, premium plan users are less sensitive to price increases, which may reduce churn and significantly boost ARM.

The company's strong Q3 2023 financial performance and higher-than-expected user growth drove revenue above expectations, mainly due to the crackdown on shared accounts. Although ARM is under short-term pressure, it is expected to grow through price increases, increased advertising revenue, and additional member fees by 2024. Additionally, the release of blockbuster content in Q4 2023 is expected to have a significant impact on subscription willingness.

Regarding guidance, Q4 2023 revenue is expected to grow by 11% YoY to $8.7 billion. Considering the strong Q4 content lineup and the effective crackdown on shared accounts, pricing strategies will alleviate ARM pressure, and the company is expected to exceed revenue guidance. Net profit growth is expected to exceed 20% in Q4 2023.Free cash flow is expected to increase significantly to $6.5 billion in 2023, bringing the company valuation back to a reasonable level.

I recommend that we pay attention to Netflix's high growth rate and reasonable valuation.