Netflix's profits jump as number of paid subscribers soars

World's largest streaming company's net income rose to $1.4bn in third quarter

Netflix reported an 83.4 per cent year-on-year increase in third-quarter net profit driven by an increase in the number of paid subscribers, which grew to nearly 214 million in the three months to September 30.

Net income during the period reached more than $1.4 billion, nearly $659 million more than the same period last year.

The world's largest streaming company posted a 16.3 per cent increase in revenue in the July-September period from a year ago to almost $7.5bn.

Its operating income jumped 33 per cent on the same period last year to $1.8bn.

After a “lighter-than-normal content slate” in the first half of the year caused by Covid 19-related production delays last year, Netflix is seeing the “positive effects of a stronger slate in the second half of the year”, it told its stakeholders.

The company said the third-quarter revenue growth was underpinned by a 9 per cent and 7 per cent increase in average paid streaming memberships and average revenue per membership (ARM), respectively.

The company added 4.4 million new subscribers in the third quarter (2.2 million in the same period last year), beating the analysts’ expectations of 3.8 million, to end the three-month period with 214 million paid memberships.

In its guidance for the fourth quarter, Netflix forecasts it will add 8.5 million new subscribers in the three months to December 31.

Despite a strong growth in subscribers, Netflix is still less than 10 per cent of the US television screen time, according to Nielsen.

“We are still quite small, with a lot of opportunity for growth in our largest and most penetrated market,” the company said.

“Our approach as always is to improve our service as quickly as we can so that we can earn a greater share of people’s time. We compete with a staggeringly large set of activities for consumers’ time and attention like watching linear TV, reading a book, browsing TikTok, or playing Fortnite,” it added.

On October 4, when Facebook experienced a global outage for nearly six hours, Netflix said its engagement saw a 14 per cent increase during that period.

The company’s net cash generated by operating activities in the third quarter was $82m against $1.3bn in the prior year period. Free cash flow (FCF) for the quarter was negative against $1.1bn in the third quarter of last year.

“FCW in last year’s third quarter was helped by Covid-related production shutdowns. However, with production volume ramping up and a lower operating margin, Netflix expects the fourth quarter’s FCW to be negative.

“We anticipate being FCF positive on an annual basis in 2022 and beyond,” Netflix said.

The company, which repurchased 200,000 shares for $100m in the third quarter, said it has enough capital and there is no need to raise external financing to fund its operations.

“We prioritise our cash to reinvest in our core business and to fund new growth opportunities like gaming, followed by selective acquisitions. After satisfying those uses of cash, excess cash above and beyond our minimum cash levels will be returned to shareholders [through stock repurchases],” Netflix said.

Netflix also updated investors on its push into gaming sector. The company said it has started testing its games offering in select countries.

“It remains very early days for this initiative and like other content categories we have expanded into, we plan to try different types of games, learn from our members and improve our game library,” Netflix said.

Games on Netflix will be included in members’ subscriptions and will not have advertisements or in-app purchases, so play is “purely focused on enjoyment versus monetisation”.

Netflix said its latest Korean series Squid Game, released on September 17, has become its biggest TV show ever.

Almost 142 million member households globally watched the title in its first four weeks. This show has been ranked as its top programme in 94 countries.

Netflix estimated that Squid Games will create about $900m in value for the company, Bloomberg reported.

The company announced it will use new metrics to report viewership. It will start documenting hours viewed instead of the number of accounts that watched.

Updated: October 20th 2021, 4:46 AM
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