Market story: Netflix (and chill) again popular like never before 📈

Yesterday Netflix released its Q3 2022 interim results, which turned out to be well above analysts' expectations. However, it wasn't revenue or net profit that stirred up the most excitement among investors, but one key piece of information. 

Autumn melancholy favors "evenings with Netflix"

It turned out that Netflix gained 2.4 million new subscribers worldwide between July and September, more than double the number expected by Wall Street. The number of new subscriptions totaled 2.41 million, compared to the projected 1.07 million (according to Refinitiv). This is significant because the streaming giant providing popular evening entertainment experienced a dramatic decline of 1.2 million subscribers in the first half of 2022. Increasing competition in the market for streaming providers can be cited as the reason, but Wall Street wants to see results, not excuses. 

And those results it saw yesterday.

Netflix's Q3'22 results and ambitious plans for Q4:

Netflix now has a total of 223.1 million subscribers worldwide. Key financial results were also impressive.

Revenues: $7.92 billion vs. $7.85 billion forecast (up 6% y/y)

Earnings per share (EPS): $3.10 vs. $2.22 (43.1% above expectations)

Netflix decided to "go for the punch" and released ambitious forecasts for gaining 4.5 million new subscribers by the end of the year, slightly beating Wall Street's estimate of 4.2 million as of the day. It seems the figure may be more than just a nice-looking incentive for investors. During the quarter, Netflix released the final episodes of the fourth season of the sci-fi hit "Stranger Things," as well as the serial killer series "Dahmer - Monster: The Jeffrey Dahmer Story," which has become one of Netflix's most-watched series of all time. What's more, in early November Netflix will introduce a $7 per month streaming plan with ads to attract frugal customers. In addition, for Q4 Netflix is planning premieres of a new season of the British series about the royal family, "The Crown," and a sequel to the 2019 film "Knives Out."

Netflix's subscription numbers are returning to growth and have left two quarters of slowdown behind. The level above 230 million could be reached as early as Q1 2023.

Source: FactSet

It should be noted that the subscription figure of 2.41 is more than double the pessimistic forecast two quarters ago.  In addition, the plan to introduce an option with ads was positively received by analysts. According to Evercore ISI, ads could bring in $1 billion to as much as $2 billion in additional revenue by 2024. Netflix estimated that competitors will end 2022 with combined operating losses of "well over $10 billion," compared to Netflix's annual operating profit of $5 billion to $6 billion.

Polish accent

Netflix's quarterly report also featured ... a Polish accent. The company mentioned the anniversary of the streaming platform's entry into the gaming industry. Netflix currently provides a base of 35 games, but 55 more are already in production, many of them based on Netflix IP. The company mentioned that this activity yields numerous cross-selling benefits, citing as an example the Cyberpunk:Edgerunners series (49 million hours viewed), which influenced CD Projekt's game sales on PC platforms. 

Optimistic forecasts 

The premieres of new seasons of popular series, a new streaming plan with commercials, and a time of year that - half-jokingly, half-seriously - encourages more frequent spending of increasingly long evenings in front of Netflix may favor not only fans of works of the silver screen, but also investors. Investors who, in increasingly difficult economic times, are looking harder for temporarily undervalued companies that may have upside potential. Especially if the popular "Netflix and chill" could mean watching "with one eye" your favorite TV series while simultaneously checking the second quotation of the selected company. 

XTB Research