Netflix on Wednesday disclosed subscriber and revenue growth in the third quarter, reporting 8.76 million paid streaming net additions globally.
The streaming giant saw revenue increase 7.8% year over year to $8.5 billion in Q3 and recorded an operating margin of 22.4%. It attributed revenue growth to the increase in average paid memberships thanks to the rollout of paid sharing, strong programming and streaming expansion globally. It now has a global streaming subscriber base of about 247 million.
On the subscriber side Netflix counted net gains both domestically and abroad. In the U.S. and Canada Netflix added 1.75 million net subscribers for a base of about 77 million. The EMEA region (Europe, Middle East and Africa) saw the strongest growth, adding 3.95 million net paid subscribers. Since last year the EMEA subscriber base, now standing at nearly 84 million as of September 30, has grown larger than that of Netflix subscribers in the U.S. and Canada market. In Netflix’s Q3 letter to shareholders it noted that over 70% of the streamer’s members are now outside of the U.S. In Q3 Netflix added 1.2 million net subscribers in Latin America, where it has around 44 million subscribers. Asia-Pacific contributed 1.8 million net additions for a total of about 42 million paid memberships in the region at the end of Q3.
Netflix’s domestic market still continues to generate the most revenue, bringing in $3.7 billion in Q3. Average revenue per member (ARM) in the U.S. also still significantly outpaces other regions but was essentially flat year-over-year at $16.29 in Q3. That compares to Q3 ARM of $10.98 in EMEA, $8.85 in Latin America and $7.62 in APAC. Overall the SVOD giant saw average revenue per membership decrease 1% year over year in Q3, which Netflix attributed to subscriber growth in lower ARM countries, limited price increases, and shifts in the mix of plans subscribers are taking.
Coinciding with its earnings release Netflix disclosed a price hike in the U.S., UK and France on its highest-tier Premium plan and Basic plan (the latter which it’s already phased out for new and rejoining members). In the U.S. the Basic plan is increasing to $11.99 per month, while the premium plan is increasing by $3 and will now cost $22.99 per month in the U.S. The price of Netflix with ads is staying the same at $6.99 per month, as is the ad-free Standard plan at $15.49 per month.
“While we mostly paused price increases as we rolled out paid sharing, our overall approach remains the same — a range of prices and plans to meet a wide range of needs, and as we deliver more value to our members, we occasionally ask them to pay a bit more,” Netflix said in its letter to shareholders. “Our starting price is extremely competitive with other streamers and at $6.99 per month in the US, for example, it’s much less than the average price of a single movie ticket.”
Netflix isn’t the only streamer to raise prices recently, and before earnings were released reports had surfaced that it would do so on the premium ad-free tier. In a recent column, TVREV analyst Alan Wolk said consumers should expect higher prices from the likes of Netflix and most other streaming services, and made the case for why they’re warranted.
In terms of driving subscribers to its lower-cost plan with ads, Netflix cited progress but also emphasized that it will take time to build up the business, which first launched last November. Ad revenue isn’t material to Netflix’s business in 2023 but “we remain very optimistic about our long run opportunity in this very big market ($180B ex-China and Russia),” the company wrote to shareholders. Overtime, Netflix said it believes the ad business should be “a multi-billion dollar revenue stream.”
In the third quarter Netflix said subscribers on its plan with ads increased nearly 70% compared to Q2 and now accounts for approximately 30% of all new signups in the 12 countries where it’s offered. Scaling the ad tier membership is key as Netflix needs to deliver audiences that attract advertiser dollars, providing a new stream of revenue.
Phasing out the Basic plan in the U.S., U.K., Italy and Canada for anyone other than existing customers contributed to a boost in adoption of the tier with ads as well as its Standard plan, according to the earnings letter. Netflix said it intends to make the same change in Germany, Spain, Japan, Mexico, Australia and Brazil next week.
As for paid sharing that rolled out more broadly earlier this year, Netflix cited low cancellations as a result, exceeding the company’s expectations. It added that “borrower households converting into full paying memberships are demonstrating healthy retention.”
Netflix executives had previously said to expect a gradual ramp for business benefits from paid sharing efforts.
Looking ahead, Netflix is forecasting Q4 revenue of $8.7 billion, up 11% year over year and paid net additions similar to Q3 of 9 million. Netflix increased its guidance on free cash flow, now expecting $6.5 billion for the full year 2023, up from its prior forecast of at least $5 billion. It also updated its full year 2023 operating margin forecast to 20%, representing the high end of earlier 18-20% guidance. Global ARM, meanwhile, is expected to be roughly flat year-over-year, which the streamer primarily attributed to limited price increases over the last 18 months.
On the content side, Netflix touted the popularity and opportunity for licensed content alongside original. Specifically, the letter to shareholders called out the TV series “Suits” – which originally aired in 2011 and ran until 2019 – but broke viewing records in July after the first eight seasons become available on Netflix. Citing Nielsen data, Suits was the most-watched title on streaming in the U.S. for 12 weeks starting in late June, with 614 million view hours – while also generating 1 billion view hours on Netflix globally over the same period.“Licensing has always been an important part of our programming strategy. As the competitive environment evolves, we may have increased opportunities to license more hit titles to complement our original programming,” Netflix said in the letter to shareholders. “We believe this will deliver additional value for our members (i.e., engagement), as well as for rights holders who benefit from the increased awareness and revenue that Netflix delivers, in addition to the new life that success on Netflix can drive…”
Netflix is scheduled to hold a third-quarter earnings call for investors later on Wednesday.