Written by Norman Isaac Mwambazi

Netflix adds 4.4m subscribers as Q3 earnings report beats expectations

As 2021 comes to an end, it is proving to be a good year for popular video streaming service Netflix …

As 2021 comes to an end, it is proving to be a good year for popular video streaming service Netflix Inc. (ticker: NFLX), if the company’s results for its third quarter of the 2021 fiscal year (Q3 FY2021) are to go by. Yesterday, the streaming giant released its Q3 FY2021 earnings report in an earnings conference call from its headquarters in Los Gatos, California, United States, and offered guidance to its Q4 expectations. The report beat analysts’ expectations in several areas of interest.

Netflix’s earnings report showed a pick-up in subscriber growth in the period between July and September 31, 2021, compared to the company’s subscriber growth in the first half of this year that proved to be disappointing. An increase in subscribers means an increase in profits, and the company’s Q3 profits exceeded Wall Street expectations by a significant margin. However, Netflix’s revenue for the quarter matched what analysts expected the company to earn.

The report shows that Netflix earned revenues of $7.48 billion in Q3 FY2021, which is the same as what Wall Street expected. However, it is a billion dollars higher than what the company reported in the same quarter 12 months ago ($6.44 billion year-over-year).

The report also shows that the company posted Earnings Per Share (EPS) of $3.19, compared with the $2.56 that Wall Street expected. This is also higher than the company’s EPS in Q3 FY2020, which stood at $1.74.

In Q3 FY2021, Netflix reported new 4.38 million subscribers on its platform, exceeding analysts’ expectation of 3.72 million. This is also almost half more than what the company reported in the same quarter 12 months ago, which stood at 2.2 million. The report also shows that Q3 FY2021 subscriber additions are way more than the 1.5 million that the streaming service added in the second quarter of the 2021 fiscal year (Q2 FY2021) as the company was still recovering from a slow start to the year.    

In addition to these good Q3 results, the company gave analysts, shareholders, and investors alike guidance for Q4 FY2021. In this guidance, the company expects to register 8.5 million new paid users on the service, which is better than the 8.32 million new users that consensus analysts expect the company to add in its last quarter of the 2021 fiscal year.

It is worth noting that Netflix’s new paid user growth was stunted in the first months of this year because the company moved from the record number added at the height of the pandemic last year. Previously, numbers grew because more people stayed home due to government restrictions. The company greatly benefited from stay-at-home directives, as it saw 25.9 million new paid users join the streaming service in the first six months of 2020. This number dropped to a mere 5.5million in the same period this year, although the company expects to ride on the success of Q3 FY2021.

After releasing the report, Netflix shares rose by about 1.5% in after-hours trading, but it has retracted 1.23% today to $631.31 a share. The company has a market capitalization of $279.38 billion.

One factor that has increased Netflix’s new user growth this quarter is the release of captivating content. The company released the highly-anticipated Season Five of Money heist in Q3, and the company’s latest hot release, “Squid Game”, has catapulted the company’s user base even higher. Netflix reported that a record 142 million people watched the hit Korean television show in its first four weeks of release on the service, breaking the record for the most viewed show on the platform, which the critically acclaimed “Bridgerton” previously held. According to Bloomberg, Netflix spent $21.4 million to produce Squid Game, and the hit show is now estimated to be worth a whopping $900 million. The company expects Squid Game to still bring in a significant portion of revenue in Q4 FY2021.

Netflix announced during the earnings call that later this year, it would change the way it measures the success of its shows by switching to reporting hours viewed. The company has been reporting the number of accounts watching its shows but believes reporting hours viewed is a slightly better indicator of the overall success of its shows and provides a better insight into the satisfaction of its subscribers.

The company has other popular shows lined up for release in Q4, such as “You”, “The Witcher”, “Cobra Kai”, and “Tiger King” that it expects will boost its revenue to round up the year. The company also has new movies coming up this quarter, namely, “Red Notice” and “Don’t Look Up”.

Speaking about the company’s content plan for 2022, Netflix said in its report that it expects to have an even more normalized program line-up in 2022 if no COVID-19 waves or unforeseen events disrupt its production timetable. Netflix said that all factors remaining constant, it will release “a greater number of originals in 2022 and a release schedule that is more balanced over the course of the year compared to 2021.”

In recent months, the company has expanded more in the international market than in the U.S. To put this into contrast, Netflix’s subscribers in the Asia-Pacific region rose by 2.2 million, 1.8 million in Europe, the Middle East and Africa (EMEA), and 330,000 in Latin America compared to just 70,000 in the U.S. and Canada in Q3 FY2021.

However, Netflix’s largest user base is still North America, as the region also has the highest average revenue per membership at $14.68 in Q3.

Overall, Netflix reported that it has 213.6 million paying subscribers as of September 30, 2021. This is far larger than its “closest” competitor Walt Disney Company’s (ticker: DIS) Disney+, which has 116 million subscribers of Disney+ as of September 30, 2021.