Streaming giant Netflix (NFLX: $403, up $57, up 16%) posted a remarkable third quarter performance last night, reporting $8.5 billion in revenues, up 7% YoY, compared to $7.9 billion a year ago. The company posted a profit of $1.7 billion, or $3.73 per share, against $1.4 billion, or $3.10, in addition to a beat on estimates at the top and bottom lines, resulting in a strong 14% post-market rally in the stock following the results.
During the quarter, the company posted strong metrics across the board, starting with its new paid subscribers at 9 million, bringing its total to 250 million. This is largely the result of its crackdown on account sharing, which is now in full swing. Netflix has further rolled out its $6.99 ad-supported pricing tier in select regions worldwide, where these plans now account for over 30% of new subscriber additions.
In addition to this, the platform’s engagement metrics so far this year are off the charts. According to Nielsen, Netflix hosted the most-watched original series for 37 of the 38 weeks this year, and the most-watched movie for 31 out of the 38. Its share of total TV screen time within the US now stands at 8%, far ahead of other competitors, and only lagging behind YouTube, which has taken a slight lead at 9%.
With the success of content such as One Piece, The Witcher, and Top Boy, Netflix has officially cracked the originals game and continues to give traditional Hollywood studios a run for their money. While licensed content will continue to play an outsized role, originals help unlock additional monetization opportunities such as theatrical releases, product placements, and merchandising.
Netflix expects a significant jump in its free cash flow at $6.5 billion, resulting in lower content expenses. In fact, they expect to spend $14 billion on content next year, down from $17 billion which will surely increase cash flow. This has prompted the company to increase its buyback authorizations by $10 billion, creating plenty of support for the stock. The company ended the quarter with $8.6 billion in cash, $17 billion in debt, and $4.6 billion in cash flow. The stock has been hit hard these past five weeks, for conceivably no good reason, as this quarter shattered expectations. This company remains one of our favorites. Our Target is $590 and our Sell Price is: We would never sell Netflix. Yes, the Target is high. But yes, the stock will get there. 2024? 2025? It WILL get there. The competition is shattered and will have to consolidate, with Netflix the clear winner.