Photo Credit: Souvik Banerjee from Pixabay

Earlier this week Netflix (Nasdaq: NFLX) reported its third-quarter performance surpassing the market’s forecast. The company reported a net increase in its subscriber base, a first this year. Netflix continues to try alternate revenue monetization models as it taps into a fairly saturated streaming market.

Netflix’s Financials

Netflix’s Q3 revenues grew 5.9% to $7.93 billion, ahead of the Street’s forecast of $7.837 billion. EPS of $3.10 was also ahead of the market’s forecast of $2.13 for the quarter.

During the quarter, it added 2.41 million net subscribers, compared with the market’s forecast of an addition of 1.09 million subscribers. It ended the quarter with 223.09 million net subscribers globally.

The increase in revenue was driven by a 5% increase in average paid memberships and a 1% increase in Average Revenue per Membership (ARM). In the APAC markets, revenue grew 19% excluding F/X as average paid memberships rose 23%. It added 1.4 million paid memberships in the region. Within EMEA, revenues and ARM grew 13% and 7%, respectively with paid net adds reaching 0.6 million. LatAm revenues increased 19%, driven by a 16% increase in ARM in the region. Netflix added 0.3 million paid memberships. In the US and Canadian markets, revenues grew by 11% with ARM increasing 12% over the year. Paid net adds reached 0.1 million in the market.

For the fourth quarter, Netflix forecast revenue of $7.78 billion driven by an addition of 4.5 million subscribers. The numbers were a pleasant relief for Netflix investors who had seen subscriber base fall by more than 1.2 million since the start of the year.

Netflix’s Monetization Focus

Netflix has been focused on expanding its revenue monetization capabilities globally through cracking down on password sharing and introducing ad-supported streaming capabilities. Earlier this month, Netflix announced that starting November, users will have the ability to subscribe to a less expensive ad-supported streaming service. Known as the Basic with Ads plan, the subscription would cost $6.99 per month and include four to five minutes of advertisements an hour for TV shows and movies. Streaming will be available on a 720p resolution and will not allow for content download.

Netflix is not the only streaming service looking at ad-supported services. Disney+ is expected to launch a similar service toward the end of the year, priced at $7.99 per month. HBO Max also has an ad-supported version priced at $9.99 a month. Netflix revealed that the initial response from advertisers for the service was very positive. It is also convinced that it will not see a significant migration of subscribers from its higher-priced services to the ad-supported version.  

Netflix has been talking about managing password sharing for a while. It plans to address the issue starting next year. According to researchers, 16% of Netflix users share their passwords with others. Netflix estimates that 100 million households across its market are sharing passwords. Netflix plans to release another pricing tier for these subscribers and will allow people sharing their accounts to create sub-accounts to pay for friends or family to use theirs.

Netflix also continues to explore its content release. It is planning to release “Glass Onion: A Knives Out Mystery” in over 600 theaters across the United States for one week before its streaming debut. This will be the first time that Netflix has struck a deal with theater chains across the country.

Meanwhile, there have been rumors about Apple looking to acquire Netflix. Apple has been pushing forward its Apple TV+ streaming service that currently features only exclusive content. Apple TV+ has recently received several awards and nominations for its content, but its user base of 50 million subscribers is a far cry from Netflix’s 223 million. If Apple were to acquire Netflix, it would be a great way for it to not only expand its market reach but also add significant third-party content and Netflix’s exclusive content to its streaming library. Despite the speculation, neither of the companies have commented on it.

Netflix’s stock is trading at $272.38 with a market capitalization of $121.1 billion. It hit a 52-week high of $700.99 in November last year and a 52-week low of $162.71 in June.

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