Netflix's Strong Q3 Earnings: Should You Invest Now?

Wall Street was impressed with Netflix's latest earnings report for the third quarter of 2023. As the streaming competition continues to heat up, major players like Apple and Amazon are investing heavily to attract viewers. Despite spending billions on content, many companies are struggling to make the economics of streaming work.

For instance, while Apple has spent $20 billion on original content in the last five years, its market share in TV viewing remains just 0.2%. In contrast, Netflix (NFLX) stands out as a leader in the streaming industry.

Netflix's Profitable Performance

Netflix's Q3 earnings announcement on October 17 revealed that the company surpassed Wall Street expectations for both revenue and earnings per share (EPS). Following this announcement, Netflix's stock surged approximately 10%. Unlike its competitors, Netflix has consistently delivered profits on a large scale. For example, while Disney reported only $47 million in operating income from its streaming services, Netflix's Q3 operating income reached nearly $3 billion.

Innovative Subscription Tiers

Initially, streaming services promised ad-free content at a lower cost than cable, but that promise has evolved. The introduction of ad-supported models, pioneered by Hulu, has allowed streaming platforms to offer lower subscription costs while generating revenue through ads. Netflix launched its ad-supported tier at the end of 2022, significantly boosting its revenue. In the last quarter, subscriptions for the ad-supported option increased by 35%, which indicates strong demand.

Hit Shows Fueling Growth

In a landscape where many streaming platforms struggle to produce popular content, Netflix has remained a frontrunner. The company has had several recent hits, such as Nobody Wants This and House of Ninjas, which even surpassed Apple’s expensive $250 million production, Masters of Air. Anticipation is high for upcoming seasons of Squid Game and other original series.

Currently, despite what seems like a saturated market, Netflix holds only 8.4% of TV viewership in the U.S., which leaves ample room for growth. Although Netflix's stock trades at a high price-to-earnings (P/E) ratio of around 40, many analysts believe the company’s potential for expansion and its pricing flexibility justify this premium. While the streaming battle continues, Netflix appears to have a significant advantage.

Netflix, Earnings, Investment