When Netflix reported third-quarter earnings after Thursday's market close, consumers, investors and analysts wanted the answers to two questions.
- Would the streaming giant raise its monthly fees?
- How much money is the company generating from its advertising business?
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The first question brought a welcome answer for many subscribers and even for investors: Not necessary to raise prices now, at least in the U.S. The business is gaining enough customers.
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The second question suggests the advertising platform isn't yet producing meaningful amounts of revenue that would require disclosure. Probably not even in 2025.
Netflix (NFLX) beat Wall Street estimates on the report, with earnings of $5.40 a share, ahead of Wall Street's consensus estimate of $5.12. Revenue of $9.82 billion was up 15% from a year earlier.
Netflix now expects fourth-quarter revenue to hit $10.1 billion, up 14% from a year earlier. Earnings are estimated at $4.23. double the figure from 2023.
In 2025, Netflix expects revenue of $43 billion to $44 billion, up 11% to 13% from its 2024 full-year guidance of $38.9 billion.
Investors cheered the results. While the shares were off 2% to $687.65 in Thursday's regular trading, they jumped 5% to $722.35 after hours, not far from its record close of $730.29, reached on Oct. 10.
At last check in the premarket Friday the shares were 6.5% higher at $732.61.
Why the fee-increase query keeps coming up
The question on a monthly-fee increase came up in the earnings call helmed by Co-CEOs Greg Peters and Ted Sarandos and Chief Financial Officer Spencer Neumann.
Analysts had predicted a fee increase would come, if only because competitors have done so. Netflix's last came in October 2023.
But Peters said an increase wasn't imminent. "We try to think about our pricing mostly not in relation to competitors but from the value we're delivering to members." So it's sticking with plans that cater to customers' interests.
More important, Netflix thinks in terms of "optimizing long-term revenue" rather than average revenue per member, he added. So in the U.S. for now, $6.99 still works, he said.
Advertising: How Netflix plans to use it
On the advertising question, Netflix wants to be able to use it to be able to offer different prices for different customers and, thus, maximize customers.
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The ad business is building and growing. It appears to be popular. In countries where it is offered, 50% of new signups are opting for the ads.
It is not yet a big enough business to break out in an earnings statement. It probably won't be broken out at least until 2026. It requires a big upfront investment.
Concern about engagement among U.S. customers prompted the trio of Peters, Sarandos and Neumann to note that Netflix offerings are expanding — from movies and television shows now to games and soon spectator sports.
Christmas Day will feature two National Football League games — the Kansas Chiefs vs. the Pittsburgh Steelers and the Baltimore Ravens vs. the Houston Texans.
A big year for the stock
Netflix shares are up 41% so far in 2024, up from nearly 29% in all of 2023. The market cap is $295.1 billion.
The year-to-date return compares favorably with the Magnificent 7 group of megacap stocks.
It's ahead of Apple (AAPL) , up 20.6%; Amazon.com (AMZN) , up 23.4%; Google-parent Alphabet (GOOGL) , up 16.6%; Microsoft (MSFT) , up 10.8% and Tesla (TSLA) , up down 11.1%.
It's behind Nvidia NVDA, up 176.5%, and Facebook-parent Meta Platforms (META) , up 63%.
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