Netflix, the world’s largest streaming service, has reported better-than-expected subscriber growth for the third quarter, boosting investor confidence as the company prepares for the holiday season with a high-profile return of its Korean drama sensation, Squid Game. In its earnings report, Netflix revealed that it added 5.1 million subscribers during the July to September period, surpassing Wall Street estimates by more than a million, leading to a 4.8% rise in the company’s shares during after-hours trading on Thursday.
This positive momentum comes as Netflix continues to reshape its business strategy, shifting the focus from sheer subscriber count to revenue growth, profitability, and a gradual pivot towards its ad-supported model.
Subscriber Growth Amid Shifting Strategies
Netflix’s third-quarter results have showcased the company’s resilience, as it reported subscriber growth that outpaced Wall Street’s forecasts. The 5.1 million new subscribers surpassed the estimated 4 million that analysts, according to LSEG data, had predicted. However, the number fell short of the 8.76 million subscribers added during the same quarter last year, highlighting a tapering growth trend.
The third quarter saw the release of several notable shows, including The Perfect Couple and Nobody Wants This, which contributed to the overall subscriber uptick. Yet, the anticipation surrounding the upcoming second season of Squid Game, set for a December release, has fueled expectations that Netflix’s holiday season performance will see an even greater boost.
While Netflix acknowledges a slowdown in new sign-ups compared to last year, Co-CEO Ted Sarandos expressed optimism about the company’s strategic plan, stating, “We had a plan to re-accelerate the business, and we delivered on that plan.” The company expects to outpace third-quarter subscriber gains in the final months of 2024.
Ad-Supported Model Gains Traction
A key highlight of Netflix’s quarterly report was the significant growth in its ad-supported subscription tier, which accounted for more than 50% of signups in markets where it was available during the third quarter. This is part of a broader effort by Netflix to diversify its revenue streams beyond traditional subscriptions.
With many streaming markets, particularly in the U.S., becoming saturated, Netflix’s focus on an ad-supported model has become a central element of its future growth strategy. The company has positioned this lower-cost tier as a means to reach new audiences, particularly in mature and competitive markets.
Forrester analyst Mike Proulx commented on Netflix’s positive trajectory, noting, “Financially, revenue and operating margins continue to increase, and expenses are down.” However, he cautioned that the growth in new subscribers, while encouraging, remains a key concern: “A steep decline in net new subscribers is what’s concerning. While there’s room for net subscriber growth internationally, in the U.S., things are getting tapped out.”
Netflix has made it clear that it does not expect advertising to become a primary revenue driver until 2026, but the current acceleration of the ad-supported tier bodes well for future growth.
Key Metrics from Q3 2024:
Metric |
Result |
Forecast |
|---|---|---|
New Subscribers |
5.1 million |
4 million |
Revenue |
$9.825 billion |
$9.769 billion |
Earnings per Share (EPS) |
$5.40 |
$5.12 |
Operating Margin |
30% |
22% (Q3 2023) |
Pricing Strategy and Global Market Expansion
As Netflix focuses on subscriber growth and revenue from international markets, it has also implemented price hikes in several regions. Starting in Spain and Italy, and following price increases in parts of Europe and Japan earlier this month, Netflix is testing the elasticity of its pricing strategy across various markets. Despite inflationary pressures, the company has seen little resistance to these price increases, suggesting that consumers value the content and services Netflix provides.
On top of this, Netflix has expanded its live-event programming to tap into lucrative advertising opportunities. The streaming service is set to air several live sports events, including a fight between YouTube star Jake Paul and boxing legend Mike Tyson, as well as two National Football League games on Christmas Day. These efforts reflect Netflix’s commitment to attracting advertisers and expanding its offerings beyond scripted content.
However, Sarandos has reiterated Netflix’s stance against bundling its service with other streaming platforms like Disney or Warner Bros Discovery, resisting the trend of discounted bundles that have become increasingly common in the competitive streaming landscape. Instead, Netflix continues to emphasize its unique content catalog as its key selling point.
Outlook for the Future
Netflix’s Q3 2024 results have demonstrated that while subscriber growth may be slowing, the company is strategically positioning itself for long-term success through its ad-supported model, pricing adjustments, and investment in new forms of content. As the company shifts its reporting focus away from subscriber numbers in 2025, it will continue to highlight key metrics such as revenue growth and profit margins as indicators of its overall health.
Though the road ahead includes challenges, especially in saturated markets like the U.S., Netflix remains confident in its ability to continue delivering strong financial results and subscriber engagement. The upcoming release of Squid Game season two and Netflix’s foray into live events could provide a solid foundation for continued growth in the final quarter of 2024 and beyond.
