By Senad Karaahmetovic
Shares of Netflix (NASDAQ:NFLX) are trading almost 13% higher in pre-open Wednesday after the streaming giant reported much better-than-expected Q3 results.
Netflix reported an EPS of $3.10 on revenue of $7.93 to crush the Street consensus that was looking for an EPS of $2.18 on revenue of $7.85 billion. The company reported global streaming paid net additions of 2.41 million, versus an expected 1 million. Streaming paid memberships were 223.09 million, up 4.5% YoY and better than the 221.7 million expected.
For this quarter, Netflix expects 4.5 million global streaming paid net additions while analysts were looking for an additional 3.9 million paid users. Netflix sees an EPS of $0.36 on revenue of $7.78 billion while the Street was looking for an EPS of $1.12 on revenue of $7.97 billion. Streaming paid memberships is expected at 227.59 million, again better than the estimate of 225.7 million
"While we're very optimistic about our new advertising business, we don't expect a material contribution in Q4'22 as we're launching our Basic with Ads plan intra-quarter and anticipate growing our membership in that plan gradually over time," Netflix said.
JPMorgan analysts upgraded Netflix to Overweight from Neutral with a price target raised to $330 per share from $240.
“Coming out of 3Q earnings, we have increased conviction in NFLX's ability to accelerate revenue growth with the help of advertising and monetization of account sharing, expand operating margins, and increase FCF,” they said.
Wolfe Research analysts raised the price target to $305 from $251 per share to reflect higher medium-term subscriber and ARPU forecasts.
“After jarringly negative net adds in 1H and a "right full rudder" move toward advertising, Netflix's 3Q results demonstrated that its subscriber growth engine still works, and that the 1H'22 breakdown related mostly to price increases and post-lockdown normalizations which have largely run their courses,” Wolfe analysts said in a client note.
“The dark days are over” is how Wells Fargo analysts described the impact of Netflix’s Q3 earnings report.
”NFLX was un-ownable when net adds turned negative, and while there will always be ebbs and flows in the slate, it's now tough to see sub loss in future years even if churn remains elevated vs history (and management did note higher churn still). With ad-supported launches in a few weeks and then paid sharing efforts in 2023, it's tough to imagine NFLX as a negative net add story again in the near future. We think the Street will coalesce at 10-15mm annual net adds. This doesn't necessarily make NFLX a good story, but it certainly removes the overhang of it being a bad story,” the analysts told clients.