Netflix Q3 rev up 16% to $7.5 bn, adds 4.4 mn paid net subs

For the second consecutive quarter, the APAC region was Netflix's largest contributor to membership growth, with 2.2 million paid net adds

e4m by exchange4media Staff
Published: Oct 20, 2021 12:56 PM  | 4 min read

Video streaming giant Netflix's Q3 revenue jumped 16% year-over-year to $7.5 billion, while operating income rose 33% to $1.8 billion. The platform added 4.4 million paid net adds vs. 2.2 million in Q3’20 on the back of a stronger content slate. Netflix had a lighter-than-normal content slate in Q1 and Q2 due to COVID-related production delays in 2020.

For the second consecutive quarter, the APAC region was Netflix's largest contributor to membership growth, with 2.2 million paid net adds (half of total paid net adds) as it continues to improve the service in this region. In EMEA, paid net adds of 1.8 million improved sequentially vs. the 188k in Q2 as several titles had a particularly strong impact. The UCAN and LATAM regions grew paid memberships more slowly.

“We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially,” the company said in its Q3 note to shareholders.

Revenue growth in Q3 was driven by a 9% and 7% increase in average paid streaming memberships and Average Revenue per Membership (ARM), respectively. Excluding a foreign exchange (FX) impact of +$128m, ARM rose 1 5% year over year. Operating margin for Q3 amounted to 23.5%, a three percentage point increase vs. the year ago period. This was above Netflix's beginning of quarter forecast due to the timing of content spend, as well as lower than forecasted marketing spend.

For Q4’21, Netflix has forecast paid net adds of 8.5 million, consistent with Q4’20 paid net additions. For the full year 2021, it has forecast an operating margin of 20% or slightly better. This means that Q4’21 operating margin will be approximately 6.5%, compared with 14% in Q4’20. The year-over-year decline in operating margin is due mostly to backloaded big content release schedule in this Q4, which will result in a roughly 19% year-over-year increase in content amortization for Q4’21 (compared with ~8% growth year to date).

Netflix said it is now producing local TV and film in approximately 45 countries and has built deep relationships with creative communities around the world. “While the goal of our local content executives is always to create locally authentic stories that will resonate in their country, Netflix is a global, direct-to-consumer service which enables creators to reach broader audiences — and gives our members an even greater choice of stories to enjoy,” it added.

The platform cited the example of Squid Game, which has become its biggest TV show ever. Released on September 17, a mind-boggling 142 million member households globally have chosen to watch the title in its first four weeks. “The breadth of Squid Game’s popularity is truly amazing; this show has been ranked as our #1 program in 94 countries (including the US). Like some of our other big hits, Squid Game has also pierced the cultural zeitgeist, spawning a Saturday Night Live skit and memes/clips on TikTok with more than 42 billion views. Demand for consumer products to celebrate the fandom for Squid Game is high, and those items are on their way to retail now.”

Later in the year, Netflix will shift to reporting on hours viewed for titles rather than the number of accounts that choose to watch them. "There is some difference in rankings, but we think engagement as measured by hours viewed is a slightly better indicator of the overall success of our titles and member satisfaction. It also matches how outside services measure TV viewing and gives proper credit to rewatching. In addition, we will start to release title metrics more regularly outside of our earnings report so our members and the industry can better measure success in the streaming world."

The platform has begun testing its games offering in select countries. It clarified that games on Netflix will be included in members’ subscriptions and will not have advertisements or in-app purchases, so game play is purely focused on enjoyment versus monetization. “It remains very early days for this initiative and, like other content categories we’ve expanded into, we plan to try different types of games, learn from our members and improve our game library. During Q3, we acquired Night School Studio, the maker of critically acclaimed games like OXENFREE, to help build out our game development capabilities.”

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