Netflix Reports Strong Operating Margins and Announces Price Hikes
Netflix (NFLX) has announced that its operating margins have more room to grow as the streaming giant focuses on initiatives like cracking down on password sharing, introducing a cheaper ad-supported tier, and implementing price hikes. On the company’s third-quarter earnings call, Netflix CFO Spencer Neumann stated, “We don’t think we’re anywhere near a margin ceiling. We’ve got a long runway of margin growth.”
In the last quarter, Netflix exceeded its own projection, achieving an operating margin of 22.4%, slightly above the projected 22.2%. The company expects the full-year operating margin to reach 20%, which is at the high end of its previous forecast of 18% to 20%.
This news is highly positive for investors who have been closely monitoring Netflix’s margin outlook. Last month, Neumann emphasized that full-year margins could fall within the range of 18% to 20%. Consensus estimates for full-year 2023 are just below 20%.
Neumann also mentioned that Netflix’s full-year operating margin is expected to improve to approximately 22% to 23% next year, assuming no significant foreign exchange fluctuations.
While management did not provide a long-term projection, the company hinted that it has the potential to secure margins similar to other media networks, which historically range between 40% to 50%.
“We have a very scalable business model,” said Neumann. “It’s a global network at scale that has, in many ways, not been seen with legacy entertainment networks. So we think we’ve got a long way to go.”
Netflix plans to maintain a “disciplined approach” to balance margin improvement with investments for future growth. Neumann stated that the company has multiple areas it can invest in, including existing content categories both domestically and internationally, expanding its advertising capabilities, creating live programming, and venturing into new content categories like gaming.
However, these investments will come with a cost to consumers. Netflix has announced price hikes in the US, UK, and France. Starting immediately, the Basic and Premium plans will be priced at $11.99 and $22.99, respectively, up from the previous $9.99 and $19.99. The ad-supported plan and Standard plan will remain unchanged at $6.99 and $15.49.
Netflix expects the price hikes to improve average revenue per membership, which declined by 1% year over year in the last quarter, along with other metrics like operating margins.
“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,” the company stated in its shareholder letter.
The surge in third-quarter subscriber additions, totaling nearly 9 million, has further boosted Netflix’s performance. The company’s earnings exceeded expectations, resulting in a stock surge of over 12% in after-hours trading.
Netflix’s strong operating margins and successful earnings report reaffirm its position as a leading player in the streaming industry. With a continued focus on growth and profitability, the company aims to deliver more value to its members while implementing strategic pricing changes.
Follow Alexandra Canal, Senior Reporter at Yahoo Finance, on Twitter (@allie_canal) for more updates on Netflix and the latest financial news.
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