Netflix revenues grow 15% in Q3, driven by ads and memberships

The news: Netflix reported strong Q3 2024 earnings, with revenues increasing 15% YoY to $9.82 billion.

• Operating income surged 52%, reaching $2.9 billion, and operating margin improved to 30%, up from 22.4% in the same quarter last year.
• Global paid memberships grew to 282.72 million, a 14.4% increase.
• The ad-supported tier surged 35% quarter over quarter on the heels of Netflix securing 150% more in upfront ad sales than in 2023. Major commitments were tied to key releases like the second season of “Squid Game” and live events such as Christmas Day NFL games and 2025 WWE events.

Shares rose approximately 5% in pre-market trading Friday, contributing to the stock’s 47% gain year-to-date.

Yes, but: Subscriber growth slowed from 8.8 million net additions in Q3 2023 to 5.1 million. The US market may be reaching saturation, which will put pressure on international growth to maintain momentum.

How we got here: Netflix’s Q3 performance highlights the company's shift toward diversifying revenue streams.

• Netflix's ad-supported tier now accounts for half of new memberships in available markets. While its ad business has yet to be a major revenue driver, it continues to build scale and attract more advertisers, with deals made through major programmatic marketplaces like Google Display & Video 360 and The Trade Desk.
• The company is experimenting with shoppable content in shows like “Emily in Paris,” which could become a new revenue stream if consumers embrace it.

Our take: Netflix’s growth—despite slowing subscriber gains—underscores the company’s ability to maintain its outsized role in the streaming market.

• Despite its strong results, Netflix may introduce further price hikes in 2024, given its flat year-over-year engagement and the rising cost of content production. Analysts expect that another price hike—one of many for the streaming industry of late—could boost revenues: Citi predicted a 12% increase in US prices by 2025.
• The company’s foray into live sports could also be a game-changer. With upcoming events like NFL games and a boxing match featuring Mike Tyson and Jake Paul, Netflix is expanding beyond traditional entertainment content. Sports have been key to attracting both viewers and advertisers.

Netflix’s ability to innovate beyond its core streaming service will be critical to maintaining its dominance as competition heats up.