Netflix Earnings: Strong Subscriber Growth Amid “Squid Game” Record

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Author: Tim Phillips

October 20, 2021

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Anyone who’s been streaming content in the past few months will nearly certainly have watched Netflix Inc’s (NASDAQ: NFLX) hit Korean series Squid Game.

I’ve previously written about why Squid Game isn’t like investing. Well, on Tuesday after the market closed, Netflix came out with its third-quarter 2021 earnings.

Expectations were high going in given Netflix stock is up 22% so far in 2021 and has risen over 15% in the past two months alone.

So, for long-term investors, and Netflix shareholders alike, here’s what everyone should know about the streaming giant’s latest earnings.

Setting new records

Netflix posted some impressive metrics for the third quarter. Revenue expanded 16% year-on-year to US$7.5 billion while its operating margin also expanded to 23.5%, up from 20.4% in the same quarter in 2020.

The all-important net new subscribers came in 4.4 million for the quarter, meaning Netflix ended the period with 213.6 million global subscribers.

Crucially, that was well ahead of the company’s own forecast for 3.5 million net new adds.

It was also no surprise to see that Squid Game became Netflix’s most-streamed show ever, easily surpassing previous record-holder Bridgerton (82 million member households).

It not only beat Bridgerton but blew it out of the water – 142 million member households watched Squid Game in the first four weeks after its release.

Asia and EMEA drive gains

What was more interesting was how Netflix’s “international growth” thesis continued unabated. It’s a trend that I had previously highlighted in what bears had always gotten wrong about Netflix.

In fact, Asia Pacific drove the gains in new subscribers with 2.2 million net adds in the region, exactly 50% of overall net new subscribers during the quarter.

The EMEA (Europe, Middle East & Africa) region saw 1.8 million net new subscribers during the most recent quarter.

Creating “localised” content is something that Netflix has honed to near-perfection, with Squid Game being a case in point. That then catapulted the show to global fame via the Netflix platform.

Hit shows such as that, French-language Lupin or Spanish-language Money Heist are what continue to set Netflix apart from the competition.

Where next for Netflix?

In terms of guidance, Netflix did mention that instead of viewership numbers based on number of households, going forward it intends to focus more on “hours of viewing” as a better metric to gauge the popularity of its content.

Netflix expects that its platform will add a further 8.5 million net new subscribers in the fourth quarter as production and release of content ramps up.

For investors, that can partly explain the muted response by Netflix’s share price post-earnings as analysts were expecting similar numbers.

However, for long-term investors focused on the Netflix streaming story, the narrative remains as strong as ever.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.